We use the Michigan Model of World Production and Trade to assess the sectoral effects of (1) a 25 percent unilateral reduction of military expenditures in the individual NATO countries and (2) a 25 percent multilateral reduction of military expenditures in all of the NATO countries combined....

Empirical labor market studies often do not include controls for family and income structure. Because these variables are significantly correlated with many of the variables commonly included, such as education, estimated coefficients are subject to omitted variable bias. We demonstrate how...

We examine why the gravity equation works and the implications for its use. First, we demonstrate that the gravity equation as a statistical relationship can be generated from a model with incomplete specialization and trade costs. Second, we analyse the predominance of zero bilateral trade...

Computable General Equilibrium models, widely used for the analysis of Free Trade Agreements (FTAs) are often criticized for having poor econometric foundations. This paper improves the linkage between econometric estimates of key parameters and their usage in CGE analysis in order to better...

A large literature has shown that geographic frictions reduce trade, but has not clarified precisely why. We provide insights into why such frictions matter by examining which parts of trade these frictions reduce most. Using data that tracks manufacturers' shipments within the United States on...

Models with constant-elasticity of substitution (CES) preferences are commonly employed in the international trade literature because they provide a tractable way to handle product differentiation in general equilibrium. However this tractability comes at the cost of generating a set of...

Not surprisingly, big countries trade more than small countries. In this paper we use data on shipments by 110 exporters to 59 importers in 5,000 product categories to ask: how? Do big countries trade larger quantities of a common set of goods (the intensive margin), a larger set of goods (the...

Developing countries pay substantially higher transportation costs than developed nations, which leads to less trade and perhaps lower incomes. This paper investigates price discrimination in the shipping industry and the role it plays in determining transportation costs. In the presence of...