This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Estimating the Gravity Equation when Zero Trade Flows are Frequent

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Martin, Will
Pham, Cong S.

Additional information is available for the following registered author(s):

Abstract

In this paper we estimate the gravity model allowing for the pervasive issues of heteroscedasticity and zero bilateral trade flows identified in an influential paper by Santos Silva and Tenreyro. We use Monte Carlo simulations with data generated using a heteroscedastic, limited-dependent-variable process to investigate the extent to which different estimators can deal with the resulting parameter biases. While the Poisson Pseudo-Maximum Likelihood estimator recommended by Santos Silva and Tenreyro solves the heteroscedasticity-bias problem when this is the only problem, it apprears to yield severely biased estimates when zero trade values are frequent. Standard threshold-Tobit estimators perform better as long as the heteroscedasticity problem is satisfactorily dealt with. The Heckman Maximum Likelihood estimators appear to perform well if true identifying restrictions are available.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

File URL: http://mpra.ub.uni-muenchen.de/9453/
File Format:
File Function:
Download Restriction: no

Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9453.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:pra:mprapa:9453

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Ekkehart Schlicht).

Related research
Keywords: International trade; Gravity equation; Limited dependent variable regression; Poisson pseudo-maximum likelihood; Zero trade flows;

Other versions of this item:

Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
P45 - Economic Systems - - Other Economic Systems - - - International Linkages
C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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.:
  1. Leung, Siu Fai & Yu, Shihti, 1996. "On the choice between sample selection and two-part models," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 197-229. [Downloadable!] (restricted)
    Other versions:
  2. Greene, William H, 1981. "On the Asymptotic Bias of the Ordinary Least Squares Estimator of the Tobit Model," Econometrica, Econometric Society, vol. 49(2), pages 505-13, March. [Downloadable!] (restricted)
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  4. Arabmazar, Abbas & Schmidt, Peter, 1981. "Further evidence on the robustness of the Tobit estimator to heteroskedasticity," Journal of Econometrics, Elsevier, vol. 17(2), pages 253-258, November. [Downloadable!] (restricted)
  5. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. DANIEL LEDERMAN & ÇAGLAR ÖZDEN, 2007. "Geopolitical Interests And Preferential Access To U.S. Markets," Economics and Politics, Blackwell Publishing, vol. 19(2), pages 235-258, 07. [Downloadable!] (restricted)
    Other versions:
  7. Nawata, Kazumitsu, 1994. "Estimation of sample selection bias models by the maximum likelihood estimator and Heckman's two-step estimator," Economics Letters, Elsevier, vol. 45(1), pages 33-40, May. [Downloadable!] (restricted)
  8. Jones, Andrew M., 2000. "Health econometrics," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 6, pages 265-344 Elsevier. [Downloadable!] (restricted)
  9. Francois, Joseph & Manchin, Miriam, 2007. "Institutions, infrastructure, and trade," Policy Research Working Paper Series 4152, The World Bank. [Downloadable!]
    Other versions:
  10. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January. [Downloadable!] (restricted)
  11. Duan, Naihua, et al, 1983. "A Comparison of Alternative Models for the Demand for Medical Care," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 115-26, April.
  12. 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. [Downloadable!]
    Other versions:
  13. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61. [Downloadable!] (restricted)
  14. Manning, W. G. & Duan, N. & Rogers, W. H., 1987. "Monte Carlo evidence on the choice between sample selection and two-part models," Journal of Econometrics, Elsevier, vol. 35(1), pages 59-82, May. [Downloadable!] (restricted)
  15. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  16. Hurd, Michael, 1979. "Estimation in truncated samples when there is heteroscedasticity," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 247-258. [Downloadable!] (restricted)
  17. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 441-487, 05. [Downloadable!] (restricted)
    Other versions:
  18. Terza, Joseph V., 1985. "A Tobit-type estimator for the censored Poisson regression model," Economics Letters, Elsevier, vol. 18(4), pages 361-365. [Downloadable!] (restricted)
  19. Inmaculada Martinez-Zarzoso & Felicitas Nowak-Lehmann D. & Sebastian Vollmer, 2007. "The Log of Gravity Revisited (in revision)," cege – Center for European, Governance and Economic Development Research Discussion Papers 64, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany)..
  20. Puhani, Patrick A, 2000. " The Heckman Correction for Sample Selection and Its Critique," Journal of Economic Surveys, Blackwell Publishing, vol. 14(1), pages 53-68, February. [Downloadable!] (restricted)
  21. Paarsch, Harry J., 1984. "A Monte Carlo comparison of estimators for censored regression models," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 197-213. [Downloadable!] (restricted)
  22. Xuepeng Liu, 2009. "GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification," Review of International Economics, Blackwell Publishing, vol. 17(3), pages 428-446, 08. [Downloadable!] (restricted)
  23. Kenneth Y. Chay & James L. Powell, 2001. "Semiparametric Censored Regression Models," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 29-42, Fall. [Downloadable!] (restricted)
  24. Powell, James L., 1984. "Least absolute deviations estimation for the censored regression model," Journal of Econometrics, Elsevier, vol. 25(3), pages 303-325, July. [Downloadable!] (restricted)
  25. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March. [Downloadable!] (restricted)
  26. Beggs, John J, 1988. "Diagnostic Testing in Applied Econometrics," The Economic Record, The Economic Society of Australia, vol. 64(185), pages 81-101, June.
  27. 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, 09. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Cong S. Pham & Mary E. Lovely & Devashish Mitra, 2009. "The Home-Market Effect and Bilateral Trade Patterns: A Reexamination of the Evidence," Economics Series 2009_12, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance. [Downloadable!]
  2. Karov, Vuko & Roberts, Donna & Grant, Jason H. & Peterson, Everett B., 2009. "A Preliminary Empirical Assessment of the Effect of Phytosanitary Regulations on US Fresh Fruit and Vegetable Imports," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49345, Agricultural and Applied Economics Association. [Downloadable!]
  3. Gábor Békés & Balázs Muraközy, 2009. "Temporary Trade," CeFiG Working Papers 6, Center for Firms in the Global Economy, revised 01 Mar 2009. [Downloadable!]
    Other versions:
  4. J. M. C. Santos Silva & Silvana Tenreyro, 2009. "Further Simulation Evidence on the Performance of the Poisson Pseudo-Maximum Likelihood Estimator," CEP Discussion Papers dp0933, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  5. Oleksandr Shepotylo, 2009. "Export diversification across industries and space: do CIS countries diversify enough?," Discussion Papers 20, Kyiv School of Economics. [Downloadable!]
  6. Oleksandr Shepotylo, 2009. "Gravity with zeros: estimating trade potential of CIS countries," Discussion Papers 16, Kyiv School of Economics. [Downloadable!]
Statistics
Access and download statistics

Did you know? RePEc encourages publishers to make their bibliographic data freely available to the public.

This page was last updated on 2009-11-28.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.