The Gravity Equation in International Economics and International Business Research: A Note
AbstractThis note discusses methodological issues and practical concerns for international economists and international business scholars who apply the gravity equation in their research. The most important message of the note is that this equation should correct for multilateral resistance factors. We propose a relatively low-cost specification and estimation to implement such correction, which is robust in the presence of various endogeneity effects and non-stationary variables. In the presence of zero-values in the dataset, however, the multilateral specification is best estimated with a Poisson maximum likelihood.
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Bibliographic InfoPaper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2010-08.
Date of creation: Aug 2010
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More information through EDIRC
gravity equation; international trade; foreign direct investment; methodology;
Find related papers by JEL classification:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- F1 - International Economics - - Trade
- F2 - International Economics - - International Factor Movements and International Business
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-14 (All new papers)
- NEP-ECM-2010-08-14 (Econometrics)
- NEP-INT-2010-08-14 (International Trade)
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.:
- J. M. C. Santos Silva & Silvana Tenreyro, 2006.
"The Log of Gravity,"
The Review of Economics and Statistics,
MIT Press, vol. 88(4), pages 641-658, November.
- Alvaro Cuervo-Cazurra, 2008. "The effectiveness of laws against bribery abroad," Journal of International Business Studies, Palgrave Macmillan, vol. 39(4), pages 634-651, June.
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