The core and periphery of the world economy |
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Authors: | Jarko Fidrmuc |
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Institution: | 1. Foreign Research Division , Oesterreichische National Bank , Vienna, Austria;2. Department of Economic and Financial Models , Faculty of Mathematics, Physics and Informatics, Comenius University , Bratislava, Slovakia |
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Abstract: | This paper reviews three models of foreign trade, including the Heckscher-Ohlin model, the new trade theory based on increasing returns to scale, and the model of economic geography and trade with agglomeration effects. It demonstrates that gravity models perform relatively well for differentiated and non-differentiated products. This result supports Hummels' and Levinsohn's () critique of the new theory foundation of the gravity equation. Furthermore, the bilateral trade relations of peripheral countries are often identified as outliers. This pattern of outliers is consistent with the model of geography and trade. |
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Keywords: | Differentiated products gravity models economic geography outlier analysis |
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