Monday 28 December 2020

The gravity model and cultural trade in restaurant meals

One of my favourite empirical models to work with is the gravity model. It is an extremely high performing (in terms of both in-sample and out-of-sample forecast accuracy) model when used in migration and trade contexts, and quite intuitive. Essentially, in a gravity model the flow (of goods and services, or people) from area i to area j is negatively related to the distance between i and j (so, if i and j are further apart, the flows are smaller, most likely because it costs more to move from i to j), and are positively related to the 'economic mass' of i and j (so, if i and/or j is larger, the flows from i to j will be larger).

I have used the gravity model myself (e.g. see this post), and so have my students (e.g. see this post). I particularly like it when I find examples of unexpected uses of the gravity model. For instance, there was this paper on running the gravity model in reverse to find lost ancient cities (which I blogged about here). 

Most of the time, a gravity model of trade involves goods and services that cross borders. However, that is not the case in this recent article by Joel Waldfogel (University of Minnesota), published in the Journal of Cultural Economics (appears to be open access, but just in case there is an ungated earlier version here). Waldfogel is probably best known for his work on the deadweight loss of Christmas (see also here), but in this research he looks at the cultural trade in restaurant dining.

The interesting thing about this article is that the data isn't really trade data at all. Restaurant meals don't cross borders. Instead, it is the intellectual property that is crossing borders, which is why this article relates to the literature on cultural economics. Waldfogel uses:

...Euromonitor data on aggregate and fast-food restaurant expenditure by country, along with TripAdvisor and Euromonitor data on the distribution of restaurants by cuisine.

He links each cuisine to an origin country (i in the description of the gravity model above), and the country location of the restaurant as the destination country (j in the gravity model description). He then calculates measures of 'trade flows' in restaurant meals, both including and excluding fast food, and runs a gravity model using those data. He finds that:

As in many models of trade, distance matters: a 1% increase in distance reduce trade by about 1%... Common language and common colonial heritage also matter.

Those are pretty standard results in the trade literature using gravity models. Then:

Which cuisines are most appealing after accounting for rudimentary gravity factors?... Excluding fast food, the ten most appealing origins are Italy, China, and Japan, which all have similar levels of appeal, followed by the USA, India, France, Mexico, Thailand, Spain, and Turkey. When fast food is included, the USA rises to the top, and the others remain in the same order.

Finally, on the balance of trade in restaurant meals, he finds that, of 44 selected countries:

...three are substantial net exporters: Italy (with net exports of $158 billion), Japan ($44 billion), and Mexico ($17 billion). Substantial net importers include the USA ($134 billion), Brazil ($39 billion), the UK ($20 billion), and Spain ($20 billion).

I was a little surprised that Spain was such a net importer of cuisine from other countries. I guess that reflects that Spanish cuisine isn't as available outside of Spain as many other European cuisines are. The US and UK being large net importers is not a surprise though.

The results are mostly uncontroversial. However, I did take issue with some of the choices. Waldfogel codes all "pizza" restaurants as Italian. I'm not convinced that Pizza Hutt or Domino's count as Italian food - more like generic fast food, most of which was coded to the US. It would be interesting to see whether re-coding pizza would make any difference to the results - possibly not, as Waldfogel does test for the impact of coding "fried chicken" as either domestic or US and that appears to make little difference.

The gravity model is clearly very versatile, and deserves much greater attention in research than it currently receives. This research demonstrates a slightly new direction for it.

[HT: Offsetting Behaviour, last year]

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