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Specification and Estimation of Gravity Models: A Review of the Issues in the Literature

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  • Fatima Olanike Kareem
  • Olayinka Idowu Kareem

Abstract

The gravity model has become an efficient tool in the analysis of international economic relations due to its theoretical derivation and ability to explain these relationships. The contending issue now is the appropriate specification and estimation techniques. This paper presents a review of current controversy surrounding the specification and estimation of gravity model with zero trade data, which we called ‘gravity modeling estimation debate’. Different positions in the literature were enunciated with the view of bringing the readers to the frontier of knowledge in this area of empirical strategies revolving on the gravity modeling in the presence of zero trade. By and large, the identification of the most appropriate estimation technique in the presence of zero trade is still an empirical issue. This paper deduced that the choice of the estimation technique should largely be based on the research questions, the model specification and the choice of data to be used for the analysis.

Suggested Citation

  • Fatima Olanike Kareem & Olayinka Idowu Kareem, 2014. "Specification and Estimation of Gravity Models: A Review of the Issues in the Literature," RSCAS Working Papers 2014/74, European University Institute.
    • Handle: RePEc:rsc:rsceui:2014/74
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    References listed on IDEAS

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    1. J. M. C. Santos Silva & Silvana Tenreyro, 2015. "Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(1), pages 93-105, February.
    2. Santos Silva, J.M.C. & Tenreyro, Silvana, 2011. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," Economics Letters, Elsevier, vol. 112(2), pages 220-222, August.
    3. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    5. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    6. Kevin E. Staub & Rainer Winkelmann, 2013. "Consistent Estimation Of Zero‐Inflated Count Models," Health Economics, John Wiley & Sons, Ltd., vol. 22(6), pages 673-686, June.
    7. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
    8. Oleksandr Shepotylo, 2009. "Gravity with zeros: estimating trade potential of CIS countries," Discussion Papers 16, Kyiv School of Economics.
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    Cited by:

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    2. Antoine ABI ZEID, 2021. "Untapped export potential in developing countries: evidence from the car industry," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 54, pages 117-144.
    3. María‐Isabel Ayuda & Hugo Ferrer‐Pérez & Vicente Pinilla, 2020. "A leader in an emerging new international market: the determinants of French wine exports, 1848–1938," Economic History Review, Economic History Society, vol. 73(3), pages 703-729, August.
    4. Kareem, Fatima Olanike & Martinez-Zarzoso, Inmaculada & Brümmer, Bernhard, 2016. "Fitting the Gravity Model when Zero Trade Flows are Frequent: a Comparison of Estimation Techniques using Africa's Trade Data," GlobalFood Discussion Papers 230588, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    5. María Isabel Ayuda & Hugo Ferrer-Pérez & Vicente Pinilla, 2018. "How to become a leader in an emerging new global market: The determinants of French wine exports, 1848-1938," Working Papers 0124, European Historical Economics Society (EHES).
    6. Berislav ZMUK, 2021. "Investigating the impact of GDP and distance variables in the gravity model using sign and rank tests," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 12, pages 5-30, June.

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    More about this item

    Keywords

    Gravity Model; Specification; Estimation; Debate;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F10 - International Economics - - Trade - - - General

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