The gravity model and trade in intermediate inputs

Theresa M. Greaney, Kozo Kiyota

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)


Is the gravity model as applicable to trade in intermediate inputs as it is to trade in final goods? One of the contributions of this paper is that we explicitly account for the dual nature of products that can be used as either intermediate inputs or final goods. We find that the structural gravity model performs extremely well for describing bilateral trade in final goods and in intermediate inputs. Moreover, this continues to hold even when we focus on a subset of countries in which intermediate inputs trade accounts for a growing share of trade, namely "Factory Asia." However, the gravity model may perform poorly due to model misspecification (i.e., exclusion of intranational trade) and/or sample selection, even after the model considers the dual nature of products. We demonstrate that the poor performance of the gravity model is not attributable to the large trade flow of intermediate inputs, which supports the continued use of the model as these trade flows continue to grow in importance worldwide.

Original languageEnglish
Pages (from-to)2034-2049
Number of pages16
JournalWorld Economy
Issue number8
Publication statusPublished - 2020 Aug 1


  • Factory Asia
  • intermediate inputs
  • intranational trade
  • structural gravity model

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Political Science and International Relations


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