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Gravity Equations: Workhorse, Toolkit, and Cookbook

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  • Head, Keith
  • Mayer, Thierry

Abstract

This chapter focuses on the estimation and interpretation of gravity equations for bilateral trade. This necessarily involves a careful consideration of the theoretical underpinnings since it has become clear that naive approaches to estimation lead to biased and frequently misinterpreted results. There are now several theory-consistent estimation methods and we argue against sole reliance on any one method and instead advocate a toolkit approach. One estimator may be preferred for certain types of data or research questions but more often the methods should be used in concert to establish robustness. In recent years, estimation has become just a first step before a deeper analysis of the implications of the results, notably in terms of welfare. We try to facilitatediffusion of best-practice methods by illustrating their application in a step-by-step cookbook mode of exposition.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9322.

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Date of creation: Jan 2013
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Handle: RePEc:cpr:ceprdp:9322

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Keywords: bilateral; gravity; trade;

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  2. Gabriel Felbermayr & Wilhelm Kohler & Volker Treier & Heribert Dieter & Christoph Herrmann & Cosimo Beverelli & Simon Neumüller & Robert Teh & Richard Senti & Matthias Lücke & Peter-Tobias Stoll, 2014. "Bali-Abkommen: Wer gewinnt, und wer trägt die Kosten?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 67(03), pages 03-34, 02.
  3. David von Below & Pierre-Louis Vezina, 2013. "The Trade Consequences of Pricey Oil," OxCarre Working Papers 115, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  4. Parteka, Aleksandra & Wolszczak-Derlacz, Joanna, 2013. "Integrated Sectors - Diversified Earnings: The (Missing) Impact of Offshoring on Wages and Wage Convergence in the EU27," Institute for Research on Labor and Employment, Working Paper Series qt3tm2935j, Institute of Industrial Relations, UC Berkeley.
  5. Mikhed, Vyacheslav & Scholnick, Barry, 2014. "Financial benefits, travel costs, and bankruptcy," Working Papers 14-18, Federal Reserve Bank of Philadelphia.
  6. Maria Cipollina & Luca Salvatici & Luca De Benedictis & Claudio Vicarelli, 2013. "A note on dummies for policies in gravity models: a Montecarlo experiment," Departmental Working Papers of Economics - University 'Roma Tre' 0180, Department of Economics - University Roma Tre.
  7. Karyne B. Charbonneau, 2014. "Multiple Fixed Effects in Binary Response Panel Data Models," Working Papers 14-17, Bank of Canada.
  8. Alexander Culiuc, 2014. "Determinants of International Tourism," IMF Working Papers 14/82, International Monetary Fund.

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