Accounting for pairwise heterogeneity in bilateral trade flows: a stochastic varying coefficient gravity model
AbstractThis paper suggests an alternative way for estimating the gravity equation that takes into consideration country-pair heterogeneity in bilateral trade flows. Specifically, a stochastic varying coefficient gravity model based on Hildreth and Houck's (1968) random coefficient regression is proposed, that eliminates heterogeneity bias inherent in standard econometric methods. The results indicate that the standard gravity estimates can differ substantially from what is obtained when heterogeneity is accounted for.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics Letters.
Volume (Year): 14 (2007)
Issue (Month): 12 ()
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Other versions of this item:
- Vangelis Tzouvelekas, 2005. "Accounting for Pairwise Heterogeneity in Bilateral Trade Flows: A Stochastic Varying Coefficient Gravity Model," Working Papers 0519, University of Crete, Department of Economics.
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