Estimation of Country-Pair Data Models Controlling for Clustered Errors: With International Trade Applications
AbstractWe consider cross-section regression models for country-pair data, such as gravity models for trade volume between countries or models of exchange rate volatility, allowing for the presence of country-specific errors. This induces clustered errors in a nonstandard setting. OLS standard errors that ignore this clustering are greatly underestimated. Under the assumption of random country-specific effects we provide analytical results that permit more efficient GLS estimation even in settings where the number of unique country-pairs is very large. We include applications to international data on real exchange rates and on bilateral trade that provided the motivation for this paper. The results are more generally applicable to regression with paired data.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of California at Davis, Department of Economics in its series Working Papers with number 06-13.
Date of creation: Jan 2005
Date of revision:
Contact details of provider:
Postal: One Shields Ave., Davis, CA 95616-8578
Phone: (530) 752-0741
Fax: (530) 752-9382
Web page: http://www.econ.ucdavis.edu/working_search.cfm
More information through EDIRC
Other versions of this item:
- A. Colin Cameron & Natalia Golotvina, 2005. "Estimation of Country-Pair Data Models Controlling for Clustered Errors: with International Trade Applications," Working Papers 613, University of California, Davis, Department of Economics.
- C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- F31 - International Economics - - International Finance - - - Foreign Exchange
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- I-Hui Cheng & Howard J. Wall, 2005.
"Controlling for heterogeneity in gravity models of trade and integration,"
Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
- I-Hui Cheng & Howard J. Wall, 2004. "Controlling for heterogeneity in gravity models of trade and integration," Working Papers 1999-010, Federal Reserve Bank of St. Louis.
- Kloek, T, 1981. "OLS Estimation in a Model Where a Microvariable Is Explained by Aggregates and Contemporaneous Disturbances Are Equicorrelated," Econometrica, Econometric Society, vol. 49(1), pages 205-07, January.
- Ruud, Paul A., 1984. "Tests of Specification in Econometrics," Department of Economics, Working Paper Series qt4kq8m0hf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
- Engel, Charles M & Rose, Andrew K, 2001.
"Currency Unions and International Integration,"
CEPR Discussion Papers
2659, C.E.P.R. Discussion Papers.
- Yongcheol Shin & Laura Serlenga, 2004.
"Gravity Models of the Intra-EU Trade: Application of the Hausman-Taylor Estimation in Heterogeneous Panels with Common Time-specific Factors,"
Econometric Society 2004 Far Eastern Meetings
671, Econometric Society.
- Laura Serlenga & Yongcheol Shin, 2004. "Gravity Models of the Intra-EU Trade: Application of the Hausman-Taylor Estimation in Heterogeneous Panels with Common Time-specific Factors," ESE Discussion Papers 105, Edinburgh School of Economics, University of Edinburgh.
- Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
- Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, vol. 20(3), pages 363-368, 05.
- Douglas L. Campbell, 2010.
"History, Culture, and Trade: A Dynamic Gravity Approach,"
EERI Research Paper Series
EERI_RP_2010_26, Economics and Econometrics Research Institute (EERI), Brussels.
- Campbell, Douglas L., 2010. "History, culture, and trade: a dynamic gravity approach," MPRA Paper 24014, University Library of Munich, Germany.
- Müller, Oliver & Uhde, André, 2013. "Cross-border bank lending: Empirical evidence on new determinants from OECD banking markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 136-162.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.