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Comparing alternative methods to estimate gravity models of bilateral trade

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  • Estrella Gómez-Herrera

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Abstract

The gravity equation has been traditionally used to predict trade flows across countries. However, several problems related with its empirical application still remain unsolved. The unobserved heterogeneity, the presence of heteroskedasticity in trade data or the existence of zero flows, which make the estimation of the logarithm unfeasible, are some of them. This paper provides a survey of the most recent literature concerning the specification and estimation methods of this equation. For a dataset covering 80% of world trade, the most widely extended estimators are compared, showing that the Heckman sample selection model performs better overall for the specification of gravity equation selected. Copyright Springer-Verlag 2013

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 44 (2013)
Issue (Month): 3 (June)
Pages: 1087-1111

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Handle: RePEc:spr:empeco:v:44:y:2013:i:3:p:1087-1111

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Keywords: International trade; Gravity model; Estimation methods; C13; C33; F10;

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Cited by:
  1. Pierucci, Eleonora & Pericoli, Filippo & Ventura, Luigi, 2014. "Reassessing international investment patterns: a revisitation of Lane and Milesi-Ferretti's evidence," MPRA Paper 53585, University Library of Munich, Germany.
  2. Umber, Marc P. & Grote, Michael H. & Frey, Rainer, 2014. "Same as it ever was? Europe's national borders and the market for corporate control," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 109-127.
  3. Cooke, Edgar F A, 2011. "The impact of trade preferences on exports of developing countries: the case of the AGOA and CBI preferences of the USA," MPRA Paper 31439, University Library of Munich, Germany.

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