On the Specification of the Gravity Model of Trade: Zeros, Excess Zeros and Zero-Inflated Estimation
AbstractConventional studies of bilateral trade patterns specify a log-normal gravity equation for empirical estimation. However, the log-normal gravity equation suffers from three problems: the bias created by the logarithmic transformation, the failure of the homoscedasticity assumption, and the way zero values are treated. These problems normally result in biased and inefficient estimates. Recently, the Poisson specification of the trade gravity model has received attention as an alternative to the log-normality assumption (Santos Silva and Tenreyro, 2006). However, the standard Poisson model is vulnerable for problems of overdispersion and excess zero flows. To overcome these problems, this paper considers modified Poisson fixed-effects estimations (negative binomial, zero-inflated). Extending the empirical model put forward by Santos Silva and Tenreyro (2006), we show how these techniques may provide viable alternatives to both the log-normal and standard Poisson specification of the gravity model of trade.
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 Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam in its series ERIM Report Series Research in Management with number ERS-2009-003-ORG.
Date of creation: 30 Jan 2009
Date of revision:
Contact details of provider:
Postal: RSM Erasmus University & Erasmus School of Economics, PoBox 1738, 3000 DR Rotterdam
Phone: 31-10-408 1182
Fax: 31-10-408 9020
Web page: http://www.erim.eur.nl/
More information through EDIRC
distance; gravity model; international trade; modified Poisson models;
Other versions of this item:
- Martijn Burger & Frank van Oort & Gert-Jan Linders, 2009. "On the Specification of the Gravity Model of Trade: Zeros, Excess Zeros and Zero-inflated Estimation," Spatial Economic Analysis, Taylor & Francis Journals, vol. 4(2), pages 167-190.
- C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
- F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
- M - Business Administration and Business Economics; Marketing; Accounting
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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.:
- Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
- Mullahy, John, 1986. "Specification and testing of some modified count data models," Journal of Econometrics, Elsevier, vol. 33(3), pages 341-365, December.
- Ghazalian, Pascal & Tamini, Lota & Larue, Bruno & Gervais, Jean-Philippe, 2007. "A Gravity approach to evaluate the significance of trade liberalization in vertically-related goods in the presence of non-tariff barriers," MPRA Paper 2744, University Library of Munich, Germany.
- James E. Anderson & Eric van Wincoop, 2000.
"Gravity with Gravitas: A Solution to the Border Puzzle,"
Boston College Working Papers in Economics
485, Boston College Department of Economics.
- James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
- James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
- Gert-Jan M. Linders & Martijn J. Burger & Frank G. van Oort, 2008. "A rather empty world: the many faces of distance and the persistent resistance to international trade," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 1(3), pages 439-458.
- Inmaculada Martínez-Zarzoso, 2013. "The log of gravity revisited," Applied Economics, Taylor & Francis Journals, vol. 45(3), pages 311-327, January.
- Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984.
"Pseudo Maximum Likelihood Methods: Applications to Poisson Models,"
Econometric Society, vol. 52(3), pages 701-20, May.
- Gourieroux Christian & Monfort Alain & Trognon A, 1982. "Pseudo maximum lilelihood methods : applications to poisson models," CEPREMAP Working Papers (Couverture Orange) 8203, CEPREMAP.
- Rauch, James E., 1999.
"Networks versus markets in international trade,"
Journal of International Economics,
Elsevier, vol. 48(1), pages 7-35, June.
- Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePub).
If references are entirely missing, you can add them using this form.