A SUR-EC-AR System Gravity Model of Trade
AbstractThis paper proposes a system of equations for modelling the volume of bilateral trade in multiple goods for a given set of countries. We postulate a gravity equation for each traded good rather than for the aggregate volume of bilateral trade. Special features of the system are the possibility of correlated explanatory variables, presence of panel data effects and autocorrelated disturbances. The correlated explanatory variables could be either correlated with the specific effects only or correlated with both the specific effects and the residual errors. Proper ways of specifying and estimating a model incorporating all the above characteristics are discussed and tests are suggested to verify some of the assumptions.
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Bibliographic InfoPaper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number B4-4.
Date of creation: Mar 2002
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bilateral trade; gravity model; panel data models; instrumental variables; autocorrelated errors;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- F1 - International Economics - - Trade
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