A note on dummies for policies in gravity models: a Montecarlo experiment
AbstractThe use of the gravity model to evaluate the effect of policies in a cross-country framework is largely predominant in the international economics empirical literature. This literature usually implements importer and exporter fixed effects to account for the theoretical Multilateral Trade Resistances, while preferential trade policies are approximated through the use of dummy variables. Results from a Monte Carlo experiment confirms that the identification of trade policy im pact using a gravity equation including fixed effects is severely limited. Moreover, the consequences of the error in measurement of the policy variable are magnified by the fixed effects control for unobserved heterogeneity.
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Bibliographic InfoPaper provided by Department of Economics - University Roma Tre in its series Departmental Working Papers of Economics - University 'Roma Tre' with number 0180.
Date of creation: Sep 2013
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Gravity model; Policy evaluation; Monte Carlo A nalysis;
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- F10 - International Economics - - Trade - - - General
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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