Lecture 6 - Gravity Flashcards
(6 cards)
What is the primary difference between inter-industry trade and intra-industry trade according to neoclassical and monopolistic competition models?
Inter-industry trade is based on traditional comparative advantage where countries specialize in different industries
Intra-industry trade occurs in differentiated products within the same industry, often due to economies of scale and imperfect competition.
According to the Baier and Bergstrand (2001) study, what was the most significant factor contributing to the growth of world trade between 1958-60 and 1986-88?
According to the study, GDP growth was the most significant factor contributing to the increase in world trade during that period.
Why does the gravity equation better fit the data of rich industrialized countries compared to underdeveloped economies?
Monopolistic competition models, which predict the gravity equation, are said to better describe the global industry structure for manufactured goods in richer countries, where product differentiation is important.
In which types of industries is more intra-industry trade typically observed?
More intra-industry trade is observed in skill, technology, and capital-intensive industries.
It is also more common in industries where IRS, imperfect competition, and product differentiation are important.
What were the main findings of the Baier and Bergstrand (2001) study regarding the contribution of different factors to the 150% increase in trade observed between 1958-60 and 1986-88?
- Two-thirds (100%) is explained by GDP growth.
- About one-quarter (38%) is explained by reductions in tariffs.
- About one-twelfth (12%) is explained by reductions in transport costs.
Income convergence was not an economically significant explanator
