All models of this economic phenomenon give rise to a "gravity equation," which predicts that magnitude of flows increases with size of the two parties to this phenomenon, and diminishes with distance.
A recent paper about this economic phenomenon by "Arkolakis et al" calculates that welfare gains associated with it are surprisingly low, and uniform across alternative models of it. The Eaton-Kortum-style models of this phenomenon show a constant elasticity of this quantity with respect to distance, proportional to the scale parameter of the Frechet distribution from which firm-level unit costs are drawn. Recent models of this phenomenon, such as those proposed by Melitz and Chaney, include fixed costs of market entry to create an extensive margin, which explains the large number of zero observations in firm-level data. All models of this economic phenomenon give rise to a "gravity equation," which predicts that magnitude of flows increases with size of the two parties to this phenomenon, and diminishes with distance. Also described by the Hecksher-Olin model, FTP, name this phenomenon which happens when countries export goods in which they have a comparative advantage.
A recent paper about this economic phenomenon by "Arkolakis et al" calculates that welfare gains associated with it are surprisingly low, and uniform across alternative models of it.
{international trade}