Trade Costs, Trade Balances and Current Accounts : An Application of Gravity to Multilateral Trade

In this paper we test the well-known hypothesis of Obstfeld and Rogoff (2000) that trade costs are the key to explaining the so-called Feldstein-Horioka puzzle. Using a gravity framework in an intertemporal context, we provide strong support for the hypothesis and we reconcile our results with the so-called home bias puzzle. Interestingly, this requires a fundamental revision of Obstfeld and Rogoff's argument. A further novelty of our work is in tying bilateral trade behavior to desired aggregate trade balances and desired intertemporal trade

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Year of publication:	[2021]
Authors:	Fazio, Giorgio ; MacDonald, Ronald ; Mélitz, Jacques
Publisher:	[S.l.] : SSRN
Subject:	Transportkosten \| Transport costs \| Welt \| World \| Transaktionskosten \| Transaction costs \| Schätzung \| Estimation \| Sparen \| Savings \| Internationale Wirtschaft \| International economy \| Investition \| Investment \| Kapitalmobilität \| Capital mobility \| Gravitationsmodell \| Gravity model \| Leistungsbilanz \| Current account

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