The role of the gravity forces on firms’ trade

This paper offers both a theoretical framework and empirical evidence on the role that the two gravity forces, namely market size and geographical distance, have indirectly through imports, on firms’ exports patterns. The model shows that sourcing from bigger and closer markets implies higher productivity gains which, in turn, increase firms’ ability to enter export market, as well as their export value. Exploiting data on product and destination-level transactions of a large panel of Italian firms, the paper shows that, on average, the indirect effects of the gravity forces are about one third of their direct effects.