A SENSITIVITY ANALYSIS OF THE GRAVITY MODEL

Abstract

In this article, we examine the robustness of variables used in the gravity model literature. We use a variant of Leamer's extreme-bounds analysis, which tracks the sign and significance level of the variable of interest to changes in the conditioning set of variables. Of the 47 variables investigated, we find 20 measuring level of development, trade policy, linguistic and colonial ties, geographic factors, relative population density, common currency, and membership in the Central American Common Market (CACM), Caribbean Community (Caricom), Mercado Común del Sur (Mercosur), Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), and Asian Pacific Economic Cooperation (APEC) are robustly linked to trade. As a result, this study provides researchers with a suitable starting point in which to examine new potential determinants of international trade.