Melting constants in trade gravity's rainbow

Abstract

Customary empirical gravity models are parametric and rely on the assumption that exports from country i to j depend on an additive index of three components: i-specific supply potential which is common across importers j; j-specific demand potential which is common across exporters i; and bilateral trade frictions which are indexed by ij and common within ij in a generic period. We demonstrate that the data reject the constancy of these components within category. The variation of trade-agreement-depth effects within category across country pairs and time is striking.