The evolution of structural gravity: The workhorse model of trade

Abstract

The gravity model is the workhorse model of trade. Yet, many economists still view gravity as a reduced‐form estimating equation and apply it without guidance from theory, while others are skeptical about its usefulness for counterfactual projections. This paper offers a historical overview of the evolution of gravity, from an a‐theoretical application to an estimating computable general equilibrium model, which can be nested in more complex frameworks. Along the way, I address some misconceptions about gravity, summarize the current recommendations for gravity estimations, highlight properties that have made gravity so successful, and review the latest contributions to the related literature.