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Bayesian inference for the gravity model

Author

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  • Priya Ranjan

    (Department of Economics, University of California-Irvine, USA)

  • Justin L. Tobias

    (Department of Economics, Iowa State University, Ames, Iowa, USA)

Abstract

This paper seeks to empirically extend the gravity model, which has been widely used to analyze volumes of trade between pairs of countries. We generalize the basic threshold tobit model by allowing for the inclusion of country-specific effects into the analysis and also show how one can explore the relationship between trade volumes and a given covariate via a non-parametric approach. We use our derived methodology to investigate the impact of a particular aspect of institutions-the enforcement of contracts-on bilateral trade. We find that contract enforcement matters in predicting trade volumes for all types of goods, that it matters most for the trade of differentiated goods, and that the relationship between contract enforcement and trade in our threshold tobit exhibits some nonlinearities. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Priya Ranjan & Justin L. Tobias, 2007. "Bayesian inference for the gravity model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(4), pages 817-838.
    • Handle: RePEc:jae:japmet:v:22:y:2007:i:4:p:817-838
    DOI: 10.1002/jae.926
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    References listed on IDEAS

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    Cited by:

    1. Chengyan Yue & John C. Beghin, 2017. "Tariff Equivalent And Forgone Trade Effects Of Prohibitive Technical Barriers To Trade," World Scientific Book Chapters, in: John Christopher Beghin (ed.), Nontariff Measures and International Trade, chapter 8, pages 139-150, World Scientific Publishing Co. Pte. Ltd..
    2. Wilfried Koch & James P. LeSage, 2015. "Latent Multilateral Trade Resistance Indices: Theory and Evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(3), pages 264-290, July.
    3. Daniel J. Henderson & Daniel L. Millimet, 2008. "Is gravity linear?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 137-172.
    4. Egger, Peter H. & Ehrlich, Maximilian v. & Nelson, Douglas R., 2020. "The trade effects of skilled versus unskilled migration," Journal of Comparative Economics, Elsevier, vol. 48(2), pages 448-464.
    5. Peter Congdon, 2010. "Random‐effects models for migration attractivity and retentivity: a Bayesian methodology," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 173(4), pages 755-774, October.
    6. Oxana Babecká Kucharčuková & Jan Babecký & Martin Raiser, 2012. "Gravity Approach for Modelling International Trade in South-Eastern Europe and the Commonwealth of Independent States: The Role of Geography, Policy and Institutions," Open Economies Review, Springer, vol. 23(2), pages 277-301, April.
    7. Bo Xiong & Sixia Chen, 2014. "Estimating gravity equation models in the presence of sample selection and heteroscedasticity," Applied Economics, Taylor & Francis Journals, vol. 46(24), pages 2993-3003, August.
    8. Manfred M. Fischer & James P. LeSage, 2020. "Network dependence in multi-indexed data on international trade flows," Journal of Spatial Econometrics, Springer, vol. 1(1), pages 1-26, December.
    9. Gregory Corcos & Delphine M. Irac & Giordano Mion & Thierry Verdier, 2013. "The Determinants of Intrafirm Trade: Evidence from French Firms," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 825-838, July.
    10. Ronaldo Carpio & Meixin Guo, 2021. "Bayesian estimation of the Eurozone currency union effect," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 511-532, August.
    11. Elisa Panzera & Thomas de Graaff & Henri L.F. de Groot, 2021. "European cultural heritage and tourism flows: The magnetic role of superstar World Heritage Sites," Papers in Regional Science, Wiley Blackwell, vol. 100(1), pages 101-122, February.
    12. Eaton, Derek J.F., 2009. "Trade and Intellectual Property Rights in the Agricultural Seed Sector," 2009 Conference, August 16-22, 2009, Beijing, China 51782, International Association of Agricultural Economists.
    13. James P. LeSage & Christine Thomas-Agnan, 2015. "Interpreting Spatial Econometric Origin-Destination Flow Models," Journal of Regional Science, Wiley Blackwell, vol. 55(2), pages 188-208, March.
    14. Christian Volpe Martincus & Jerónimo Carballo, 2012. "Export promotion activities in developing countries: What kind of trade do they promote?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(4), pages 539-578, June.
    15. He, Mingyi & Bogomolov, Yuri & Khulbe, Devashish & Sobolevsky, Stanislav, 2023. "Distance deterrence comparison in urban commute among different socioeconomic groups: A normalized linear piece-wise gravity model," Journal of Transport Geography, Elsevier, vol. 113(C).
    16. Hu, Yushan & Zhang, Penglong, 2021. "Semiparametric estimation of varying trade elasticities in gravity," Economics Letters, Elsevier, vol. 209(C).

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