Theoretical Foundations and Evolution of the Structural Gravity Model in International Trade: Policy Insights and Implications (Published)
This paper revisits the theoretical evolution and modern refinements of the gravity model of international trade, emphasizing its transformation from an empirical regularity into a structurally grounded analytical framework. It situates the gravity model within the broader landscape of trade theory, highlighting the limitations of traditional Ricardian and Heckscher–Ohlin models in explaining observed trade patterns. The paper traces the model’s development from early Newtonian analogies to its microeconomic foundations, as formalized by Anderson, Bergstrand, and Deardorff, and to subsequent extensions by Eaton and Kortum and Melitz that incorporate technology differences, market structure, and firm heterogeneity. Central attention is given to the contribution of Anderson and van Wincoop, who resolved the border puzzle by introducing multilateral resistance terms that capture general equilibrium trade cost effects. The refined structural gravity model is shown to provide a coherent explanation of bilateral trade flows by accounting for both direct and indirect trade barriers. Overall, the paper concludes that structural gravity represents a unifying framework for empirical trade analysis and policy evaluation.
Keywords: Globalization, Gravity model, international trade theory, multilateral resistance, structural gravity, trade costs