Economics and Information Theory

This chapter focuses on the estimation and interpretation of gravity equations for bilateral trade. This necessarily involves a careful consideration of the theoretical underpinnings since it has become clear that naive approaches to estimation lead to biased and frequently misinterpreted results. There are now several theory-consistent estimation methods and we argue against sole reliance on any one method and instead advocate a toolkit approach. One estimator may be preferred for certain types of data or research questions but more often the methods should be used in concert to establish robustness. In recent years, estimation has become just a first step before a deeper analysis of the implications of the results, notably in terms of welfare. We try to facilitate diffusion of best-practice methods by illustrating their application in a step-by-step cookbook mode of exposition.

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Gravity Equations: Workhorse,Toolkit, and Cookbook

A. L. Kroeber and Clyde Kluckhohn, "culture: A critical review of concepts and definitions"

This article presents estimates of the impact of regional variety and trade linkages on regional economic growth by means of export and import data by Italian province (NUTS 3) and sector (three-digit) for the period 1995–2003. Our results show strong evidence that related variety contributes to regional economic growth. Thus, Italian regions that are well endowed with sectors that are complementary in terms of competences (i.e., that show related variety) perform better. The article also assesses the effects of the breadth and relatedness of international trade linkages on regional growth, since they may bring new and related variety to a region. Our analysis demonstrates that regional growth is not affected by simply being well connected to the outside world or having a high variety of knowledge flowing into the region. Rather, we found evidence of related extraregional knowledge sparking intersectoral learning across regions. When the cognitive proximity between the extraregional knowledge and the knowledge base of a region is neither too small nor too large, real learning opportunities are present, and the external knowledge contributes to growth in regional employment.

https://www.jstor.org/stable/pdfplus/40377307.pdf

Related variety, trade linkages, and regional growth in Italy

This paper makes an attempt to estimate the impact of regional variety and trade linkages on regional economic growth by means of export and import data by Italian province (NUTS 3) and sector (3-digit) for the period 1995-2003. Our results show strong evidence of related variety contributing to regional economic growth, no matter how growth is defined. Thus, Italian regions well endowed with sectors that are complementary in terms of competences (i.e. having related variety) perform better. The paper also assesses the effects of the breadth and relatedness of international trade linkages on regional growth, as it may bring new and related variety in the region. Our analysis demonstrates that regional growth is not affected by being well connected to the outside world per se, or having a high variety of knowledge flowing into the region. When the extra-regional knowledge originated from sectors the region is already specialised in, it did not positively impact on regional economic growth either. We found, however, some evidence of related extra-regional knowledge sparking off inter-sectoral learning across regions. With respect to employment growth, we could demonstrate that a region benefits from extra-regional knowledge when it originates from sectors that are related, but not similar to the sectors present in the region. Apparently, when the cognitive proximity between the extra-regional knowledge and the knowledge base of the region is neither too small nor too large, real learning opportunities are present, and the external knowledge contributes to regional employment growth.

Related variety, trade variety and regional growth in Italy

This paper uses the tools of network analysis and graph theory to graphically and analytically represent the characteristics of world trade The structure of the World Trade Network is compared over time, detecting and interpreting patterns of trade ties among countries In particular, we assess whether the entrance of a number of new important players into the world trading system in recent years has changed the main characteristics of the existing structure of world trade, or whether the existing network was simply extended to a new group of countries We also analyze whether the observed changes in international trade flow patterns are related to the multilateral or the regional liberalization policies The results show that trade integration at the world level has been increasing but it is still far from being complete, with the exception of some areas, that there is a strong heterogeneity in the countries’ choice of partners, and that the WTO plays an important role in trade integration The role of the extensive and the intensive margin of trade is also highlighted

/pdf/the-world-trade-network-2amnbgyrzm.pdf

The World Trade Network

Since Jan Tinberben’s original formulation (Tinbergen 1962, Shaping the World Economy, The Twentieth Century Fund, New York), the empirical analysis of bilateral trade flows through the estimation of a gravity equation has gone a long way. It has acquired a solid reputation of good fitting; it gained respected micro foundations that allowed it to move to a mature stage in which the “turn-over” gravity equation has been replaced by a gravity model; and it has dominated the literature on trade policy evaluation. In this chapter we show how some of the issues raised by Tinbergen have been the step stones of a 50-year long research agenda, and how the numerous empirical and theoretical contributions that followed dealt with old problems and highlighted new ones. Some future promising research issues are finally indicated.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2384045_code291159.pdf?abstractid=2384045&mirid=1&type=2

The Gravity Model in International Trade

In this paper we explore the BACI-CEPII database using Network Analysis. From the visualization of the World Trade Network, we define and describe its topology, both in its binary version and in it...

/pdf/network-analysis-of-world-trade-using-the-baci-cepii-dataset-4ld6516ew6.pdf

Network Analysis of World Trade using the BACI-CEPII Dataset

It is customary in the empirical trade literature to analyze specialization patterns of countries using Revealed Comparative Advantage (RCA) measures. This paper explores the informational content of the most commonly used RCA index: the Balassa (1965) Index of RCA. After describing the properties of the Balassa Index, we propose a research strategy based on descriptive statistics, kernel density estimation, concentration and Markov stationarity methods in order to analyze the dynamics of overall specialization.

Overall Specialization Empirics: Techniques and Applications

It is customary in the empirical trade literature to analyze specialization patterns of countries using Revealed Comparative Advantage (RCA) measures This paper explores the pros and cons of the most commonly used RCA index: the Balassa (1965) Index of RCA After describing the properties of the Balassa Index, we analyze two different normalizations of the original Index recently proposed by Laursen (2000) and Proudman and Redding (1998) to remedy some of the shortcomings of the original index, and we propose an alternative and more traditional strategy in order to analyze the dynamics of specialization

/pdf/a-note-on-the-balassa-index-of-revealed-comparative-2sxlx6f19t.pdf

Luca De Benedictis

Papers

The World Trade Network

The Gravity Model in International Trade

Network Analysis of World Trade using the BACI-CEPII Dataset

Overall Specialization Empirics: Techniques and Applications

A Note on the Balassa Index of Revealed Comparative Advantage