On the Problem of Endogenous Unobserved Effects in the Estimation of Gravity Models
AbstractWe propose to estimate gravity models by a Hausman and Taylor (1981) 2SLS error components approach. First, this allows to account for the possible correlation of some of the regressors with the unobserved effects, which has been ignored in previous research. Second and in contrast to the Within estimator, one obtains estimates for the time-invariant variables also in a framework with bilateral effects. We show that distance and country size are important sources of correlation. The properly estimated parameter of distance is about twice as high as its biased GLS counterpart and markedly higher than found by others.
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Bibliographic InfoPaper provided by WIFO in its series WIFO Working Papers with number 132.
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On the Problem of Endogenous Unobserved Effects in the Estimation of Gravity Models;
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- Egger, Peter, 2004. "On the Problem of Endogenous Unobserved Effects in the Estimation of Gravity Models," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 19, pages 182-191.
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
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