IDEAS home Printed from https://ideas.repec.org/a/bpj/glecon/v8y2008i1n2.html
   My bibliography  Save this article

Monte Carlo Appraisals of Gravity Model Specifications

Author

Listed:
  • Schaefer Kurt C

    () (Calvin College)

  • Anderson Michael A

    () (Washington and Lee University)

  • Ferrantino Michael J

    () (US International Trade Commission)

Abstract

Many improvements have been proposed for the basic gravity model specification, most of which are confirmed by standard statistical tests due to the large number of observations often used to estimate such models. We use Monte Carlo experiments to examine situations in which features of models may be found statistically significant (or insignificant) when it is known ex ante that they are absent (or present) in the underlying data process. Erroneous assumptions about the presence or absence of lagged dependent variables, fixed effects, free-trade associations and custom unions are shown to introduce an economically important bias in estimates of the coefficients of interest, and in some cases to be confirmed spuriously. Policy effects for such initiatives as free trade associations and currency unions can also be confirmed spuriously when they do not exist in the data-generating process.

Suggested Citation

  • Schaefer Kurt C & Anderson Michael A & Ferrantino Michael J, 2008. "Monte Carlo Appraisals of Gravity Model Specifications," Global Economy Journal, De Gruyter, vol. 8(1), pages 1-26, February.
  • Handle: RePEc:bpj:glecon:v:8:y:2008:i:1:n:2
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/gej.2008.8.1/gej.2008.8.1.1340/gej.2008.8.1.1340.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Barry Eichengreen & Douglas A. Irwin, 1998. "The Role of History in Bilateral Trade Flows," NBER Chapters,in: The Regionalization of the World Economy, pages 33-62 National Bureau of Economic Research, Inc.
    2. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
    3. Keller, Wolfgang, 1998. "Are international R&D spillovers trade-related?: Analyzing spillovers among randomly matched trade partners," European Economic Review, Elsevier, vol. 42(8), pages 1469-1481, September.
    4. Nason, James M. & Rogers, John H., 2006. "The present-value model of the current account has been rejected: Round up the usual suspects," Journal of International Economics, Elsevier, vol. 68(1), pages 159-187, January.
    5. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, April.
    6. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
    7. Ghosh, Sucharita & Yamarik, Steven, 2004. "Are regional trading arrangements trade creating?: An application of extreme bounds analysis," Journal of International Economics, Elsevier, vol. 63(2), pages 369-395, July.
    8. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters,in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
    9. Howard J. Wall, 1999. "Using the gravity model to estimate the costs of protection," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 33-40.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Owen, P. Dorian & Winchester, Niven, 2014. "The impact of US fresh milk production standards on dairy trade," Journal of Policy Modeling, Elsevier, vol. 36(6), pages 1008-1021.
    2. Ernest Miguélez & Rorina Moreno, 2012. "“What attracts knowledge workers? The role of space, social connections, institutions, jobs and amenities”," AQR Working Papers 201203, University of Barcelona, Regional Quantitative Analysis Group, revised Feb 2012.
    3. Roc Armenter & Mikl?s Koren, 2014. "A Balls-and-Bins Model of Trade," American Economic Review, American Economic Association, vol. 104(7), pages 2127-2151, July.
    4. Olper, Alessandro & Raimondi, Valentina, 2002. "Elasticity of trade flow to trade barriers: A comparison among emerging estimation techniques," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44119, European Association of Agricultural Economists.
    5. Alessandro Olper & Valentina Raimondi, 2009. "Patterns and Determinants of International Trade Costs in the Food Industry," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(2), pages 273-297.
    6. Ernest Miguélez & Rosina Moreno, 2014. "What Attracts Knowledge Workers? The Role Of Space And Social Networks," Journal of Regional Science, Wiley Blackwell, vol. 54(1), pages 33-60, January.
    7. Briggs Kristie, 2012. "Patents, Technology Adaptation, and Exports to Developing Countries," Global Economy Journal, De Gruyter, vol. 12(1), pages 1-20, March.
    8. Raimondi, Valentina & Olper, Alessandro, 2009. "The sensitivity of trade flows to trade barriers," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 50658, Agricultural and Applied Economics Association.
    9. Schaak, Henning, 2015. "The Impact of Free Trade Agreements on International Agricultural Trade: A Gravity Application on the Dairy Product Trade and the ASEAN-China-FTA," 55th Annual Conference, Giessen, Germany, September 23-25, 2015 211619, German Association of Agricultural Economists (GEWISOLA).
    10. Richard Frensch, 2008. "Trade liberalisation, adoption costs, and import margins in CEEC and OECD trade," Working Papers 269, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    11. repec:rnp:ecopol:ep1712 is not listed on IDEAS
    12. Michael Ferrantino, 2006. "Quantifying the Trade and Economic Effects of Non-Tariff Measures," OECD Trade Policy Papers 28, OECD Publishing.
    13. Zwinkels, Remco C.J. & Beugelsdijk, Sjoerd, 2010. "Gravity equations: Workhorse or Trojan horse in explaining trade and FDI patterns across time and space?," International Business Review, Elsevier, vol. 19(1), pages 102-115, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:glecon:v:8:y:2008:i:1:n:2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: https://www.degruyter.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.