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| Gravity Model of Trade× | Computable General Equilibrium× | |
|---|---|---|
| Field | Economics | Economics |
| Family≠ | Regression model | Process / pipeline |
| Year of origin≠ | 2003 | 1960 |
| Originator≠ | Jan Tinbergen (empirical); Anderson & van Wincoop (structural) | Leif Johansen; developed by Herbert Scarf, John Shoven & John Whalley |
| Type≠ | Structural econometric model of bilateral trade flows | Multi-market numerical equilibrium simulation model |
| Seminal source≠ | Anderson, J. E., & van Wincoop, E. (2003). Gravity with gravitas: A solution to the border puzzle. American Economic Review, 93(1), 170–192. DOI ↗ | Shoven, J. B., & Whalley, J. (1992). Applying General Equilibrium. Cambridge Surveys of Economic Literature. Cambridge University Press. ISBN: 9780521319867 |
| Aliases | Gravity Equation, Trade Gravity Model, Structural Gravity, Anderson-van Wincoop Model | CGE Model, Applied General Equilibrium, AGE Model, Walrasian Simulation Model |
| Related≠ | 2 | 3 |
| Summary≠ | The gravity model of trade explains bilateral trade flows by analogy to Newton's law of gravitation: trade between two economies is proportional to their economic sizes and inversely related to the trade costs (such as distance) between them. First applied empirically by Jan Tinbergen in 1962 and given a rigorous theoretical foundation by Anderson and van Wincoop in 2003, the structural gravity model shows that trade depends not only on bilateral barriers but on those barriers relative to each country's overall, multilateral resistance to trade. | A computable general equilibrium (CGE) model is a numerical simulation of an entire economy in which optimizing producers and consumers interact through markets that all clear simultaneously. Building on Walras's general-equilibrium theory and a benchmark social accounting matrix, a CGE model is calibrated to reproduce a base-year economy and then solved for the new vector of prices and quantities that would prevail under a counterfactual policy — a tax reform, a tariff change, a carbon price — capturing how the shock reverberates and re-equilibrates across every market. |
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