Publication

This paper undertakes an empirical investigation of how intra-firm trade may differ from trade conducted at arm’s length, employing a gravity equation model. In the framework of a gravity equation, trade is hypothesized to depend positively on the trading partners’ economic size and negatively on the distance between them. The author calculates a gravity equation model of international trade for the US, estimating separate equations for the two types of trade in order to allow intra-firm trade to differ from conventional trade conducted at arm's length. The paper finds that the gravity equation model performs quite differently with respect to intra-firm trade and arm's length trade.