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Estimating the gravity model without gravity using panel data

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Author Info

  • Joakim Westerlund
  • Fredrik Wilhelmsson

Abstract

This article examines the effects of zero trade on the estimation of the gravity model using both simulated and real data with a panel structure, which is different from the more conventional cross-sectional structure. We begin by showing that the usual log-linear estimation method can result in highly deceptive inference when some observations are zero. As an alternative approach, we suggest using the poisson fixed effects estimator. This approach eliminates the problems of zero trade, controls for heterogeneity across countries, and is shown to perform well in small samples.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840802599784
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 43 (2009)
Issue (Month): 6 ()
Pages: 641-649

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Handle: RePEc:taf:applec:v:43:y:2009:i:6:p:641-649

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Cited by:
  1. Alexander Knobel, 2012. "The Influence Of Services Trade Liberalization On Service Flows And Industry Productivity In Cis Countries And Russia," Working Papers 0013, Gaidar Institute for Economic Policy, revised 2012.
  2. Estrella Gómez Herrera, 2010. "Comparing alternative methods to estimate gravity models of bilateral trade," ThE Papers 10/05, Department of Economic Theory and Economic History of the University of Granada..
  3. Montobbio Fabio & Sterzi Valerio, 2012. "The globalization of technology in emerging markets: a gravity model on the determinants of international patent collaborations," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201208, University of Turin.
  4. Valeria Costantini & Francesco Crespi, 2013. "Public policies for a sustainable energy sector: regulation, diversity and fostering of innovation," Journal of Evolutionary Economics, Springer, vol. 23(2), pages 401-429, April.
  5. Yang, Shang-Ho & Reed, Michael R. & Saghaian, Sayed H., 2012. "International Pork Trade and Foot-and-Mouth Disease," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124356, Agricultural and Applied Economics Association.
  6. Hess, Wolfgang & Persson, Maria & Rubenbauer, Stephanie & Gertheiss, Jan, 2013. "Using Lasso-Type Penalties to Model Time-Varying Covariate Effects in Panel Data Regressions - A Novel Approach Illustrated by the 'Death of Distance' in International Trade," Working Papers 2013:5, Lund University, Department of Economics.
  7. Bernhard Herz & Marco Wagner, 2010. "Multilateralism versus Regionalism!?," Working Papers 089, Bavarian Graduate Program in Economics (BGPE).
  8. Herz, Bernhard & Wagner, Marco, 2010. "The dark side of the generalized system of preferences," Working Papers 02/2010, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.

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