Explaining Trade Flows: Theory and Evidence - This paper discusses progress in two of the most active areas in empirical studies
of world-trade: namely explanation of bilateral trade volumes with the gravity model, and empirical verification of the model based on factor content. The empirical success of the gravity model has long been acknowledged, but it was thought to have scant theoretical underpinnings. In contrast, the factor content theory of trade has been a source of intensive and creative theoretical research for fifty years, but it has been considered empirically suspect. The paper argues that recent developments have cast doubt on such assumptions: the gravity model has received strong theoretical support while its empirical validity has been questioned; conversely, empirical investigations have confirmed the validity of the factor content theory.