Structural Gravity | Intensive Course & Professional Workshop

Description and Objectives

The objective of the course is to serve as a practical guide for trade policy analysis with the workhorse model in international trade – the structural gravity model. To pursue this objective, the course combines cutting-edge academic research with extensive policy experience, and it offers a comprehensive and balanced approach between theory and empirics. The course traces the evolution of gravity from its initial a-theoretical applications to the most recent structural estimation gravity frameworks, e.g., sectoral dynamic gravity with input-output linkages. After deriving the original gravity model step by step, it is shown that the same model can be derived from many different theoretical micro-foundations. Guided by theory, a set of best practices and recommendations are established for estimating the gravity equation, and the importance of these recommendations is demonstrated and reinforced through a series of applications for bilateral policies (e.g., FTAs, sanctions, etc.) and country-specific and non-discriminatory characteristics (e.g., subsidies, institutional quality, etc.). The same gravity framework is then used to translate the partial equilibrium policy estimates into full general equilibrium effects on various economic outcomes, e.g., trade, prices, welfare. The course concludes with a demonstration of how the gravity model of trade can be nested into a wide range of production models with a focus on dynamic capital accumulation and FDI. The lectures are complemented with hands-on sessions that allow the participants to implement and experiment with the recommendations to estimate the gravity equation and to capitalize on the general equilibrium capabilities of the model. Importantly, owing to recent research developments, all exercises and applications in the course (including the general equilibrium simulations), can be performed with standard built-in commands directly in Stata.

Audiences

The course has been beneficial to various audiences, including: (i) Applied Economists and Policy Makers, who have used the gravity model as a tool to address specific (policy) questions of interest to them; (ii) Advanced Master Students in the fields of Economics, Public Policy (quantitative track), and International Relations quantitative track), who have used gravity estimations for term projects and master thesis; (iii) Ph.D. Students in the fields of International and Development Economics, Public Policy, and International Relations (quantitative track), who have relied on gravity for estimation purposes or to nest the trade gravity model within broader frameworks; (iv) Academic Researchers in Economics, who have benefited from a comprehensive refreshment and an update on the latest developments in this area. I have also observed increased interest in the gravity model from academics in other fields (e.g., Political Science); Occasionally, the course has been taken by very talented (v) undergraduate students too. The following is a list of the places where I have taught versions of the course:

Course Structure

Usually, the course is offered as a stand-alone intensive course. However, sometimes, I have delivered different parts of the course as modules in existing Ph.D. or Master-level courses taught by other colleagues. The most comprehensive version of the course includes three modules (lectures, hands-on sessions, and empirical projects), which build on each other. Most often, I have taught the first two modules (lectures and hands-on sessions) together, while the third module has been most effective and beneficial when the course was spread out over a longer period.

Module I: Lectures

This module consists of standard lecturing and does not require the use of computers.

Lecture 1: The Gravity Model of International Trade: Introduction and Theoretical Foundations.
Duration: About 3 astronomical hours.

Module II: Hands-on Sessions

This module requires computers and Stata (version 14 or higher).

Session 1: Hands-on Session on Estimating Structural Gravity. Applications. (Stata required)
Duration: About 2 astronomical hours.

Session 2: Hands-on Session on GE Analysis with the Structural Gravity model. Applications. (Stata required)
Duration: About 2 astronomical hours.

Module III: Research Projects

This module is designed for longer versions of the course, when the participants have enough time to work on empirical research projects/policy reports. The main objectives of the research projects are to estimate the gravity model and to translate the partial estimates into full general equilibrium effects with a focus on a particular policy/application (e.g., studying the impact of NAFTA, GATT/WTO membership, Brexit, Sanctions, Trump tariffs, etc.) Usually, the students select among several pre-determined research topics, however, sometimes they have proposed their own applications. The research projects are presented at an end-of-term mini research conference.

Prerequisites

Because the gravity model is very intuitive, the course is accessible to a wide range of audiences, even to participants with limited theoretical and technical skills, especially if they have good intuition and solid policy background. However, the course is most beneficial to participants who have had advanced undergraduate-level or master-level Microeconomic Analysis and Econometric Analysis. Previous experience with Stata, including data manipulation and use of canned estimation commands (no coding!) is also very highly recommended. Advanced undergraduate-level or master-level knowledge of International Trade is not a formal prerequisite but would be a very beneficial to the participants in this course.

Highly Recommended Readings

The following are several highly recommended readings that may serve as a solid foundation for the course.

[1] "The Evolution of Structural Gravity: The Workhorse Model of Trade"
Yotov, Y. V., Contemporary Economic Policy, vol. 42(4), pages 578-603, 2024.

[2] "Estimating Gravity Equations: Theory Implications, Econometric Developments, and Practical Recommendations"
Larch, M., Serge Shikher, and Y. V. Yotov
co-published by UNCTAD and WTO, 2016.

[3] "An Advanced Guide to Trade Policy Analysis: The Structural Gravity Model"
Yotov, Y. V., R. Piermartini, J. A. Monteiro, and M. Larch
co-published by UNCTAD and WTO, 2016.

[4] "Estimating Trade Policy Effects with Structural Gravity"
Piermartini, R. and Y. V. Yotov, 2016.

[5] "General Equilibrium Trade Policy Analysis with Structural Gravity"
Larch, M. and Y. V. Yotov, 2016.

Additional Gravity References