Trade costs, trade balances and current accounts : an application of gravity to multilateral trade

Arbeitspapier

In this paper we test the well-known hypothesis of Obstfeld and Rogoff (2000) that trade costs are the key to explaining the so-called Feldstein-Horioka puzzle. Using a gravity framework in an intertemporal context, we provide strong support for the hypothesis and we reconcile our results with the so-called home bias puzzle. Interestingly, this requires a fundamental revision of Obstfeld and Rogoff's argument. A further novelty of our work is in tying bilateral trade behavior to desired aggregate trade balances and desired intertemporal trade.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1529

Classification and Topics

• Classification: Wirtschaft ; Current Account Adjustment; Short-term Capital Movements ; Trade: General
• Subject: Feldstein-Horioka puzzle ; trade costs ; gravity model ; home bias puzzle ; current account ; trade balance ; Sparen ; Investition ; Internationale Kapitalmobilität ; Außenwirtschaft ; Transaktionskosten ; Transportkosten ; Schätzung ; Gravitationsmodell ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fazio, Giorgio ; MacDonald, Ronald ; Melitz, Jacques
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/18993
• Last update: 10.03.2025, 11:43 AM CET