Curso Bogotá Summer School in Economics

The objective of this course is to serve as a practical guide for analysis of trade flows and trade policy with the structural gravity model, i.e., the workhorse model in international trade and recently referred to as ‘new quantitative trade model’. To this end, the course combines cutting edge academic research and extensive policy experience, and it offers a comprehensive and balanced approach between theory and empirics.

The course traces the evolution of the structural gravity model from its initial a-theoretical applications to the most recent structural estimation gravity frameworks, e.g. dynamic gravity. After deriving the original gravity equation, it is shown that the same model can also be derived from many different theoretical micro-foundations. Guided by theory, a set of best practices and recommendations are established for partial equilibrium gravity estimations, and their importance is demonstrated with a series of trade policy applications including bilateral policies (e.g., evaluating the impact of FTAs, sanctions, etc.) as well as non-discriminatory policies and country-specific characteristics (e.g., export support, 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.