ge_gravity2: a command for solving universal gravity models

TL;DR

ge_gravity2 is a new Stata command that efficiently computes counterfactual trade flows, prices, and welfare effects in a broad class of universal gravity models, facilitating policy analysis.

Contribution

It extends the existing ge_gravity command to handle general equilibrium effects in positive supply elasticity models within universal gravity frameworks.

Findings

Enables computation of trade policy impacts in large models

Supports models with positive supply elasticities

Facilitates analysis of welfare and price changes

Abstract

We describe an algorithm for computing counterfactual trade flows, prices, output, and welfare in a large class of general equilibrium trade models. We introduce a command called ge_gravity2 that allows users to perform these computations in Stata. This command extends the existing ge_gravity command by allowing users to compute the general equilibrium effects of changes in trade policy in positive supply elasticity models. It can be used to solve any model that falls into the class of universal gravity models as defined by Allen, Arkolakis, and Takahashi [Universal Gravity, Journal of Political Economy, 128(2), 2020, 393-433].