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Gravity Model of International Trade, Its Variables, Assumptions, Problems and Applications

  • Petra Bubáková
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    The paper deals with the issues of gravity models applied in the field of trade flow analysis. Applied variables, assumptions of their impacts, problems of gravity equations and their resolving (namely the endogeneity problem, the heterogeneity problem, and the identification problem) are defined in this paper. The paper provides a detailed overview of selected gravity model publications in scientific papers with an impact factor since 2000. According to the document analysis, it is clear that panel data are the most commonly used type of data in the 21st century. Fixed effects models are recommended. The choice of variables depends on the subject being examined and on the aim of the analysis. Correct model specification and inclusion of relevant variables are highly important. The results were elaborated as part of the research project IGA 20121050 "Spatial regional market integration with agricultural raw materials".

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    Article provided by University of Economics, Prague in its journal Acta Oeconomica Pragensia.

    Volume (Year): 2013 (2013)
    Issue (Month): 2 ()
    Pages: 3-24

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    Handle: RePEc:prg:jnlaop:v:2013:y:2013:i:2:id:396:p:3-24
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    1. Peter Egger, . "An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials," WIFO Working Papers 141, WIFO.
    2. 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.
    3. Chengang Wang & Yingqi Wei & Xiaming Liu, 2010. "Determinants of Bilateral Trade Flows in OECD Countries: Evidence from Gravity Panel Data Models," The World Economy, Wiley Blackwell, vol. 33(7), pages 894-915, 07.
    4. Jacques Melitz, 2005. "North, South and Distance in the Gravity Model," Working Papers 2005-11, Centre de Recherche en Economie et Statistique.
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    29. Peter Egger & Michael Pfaffermayr, 2003. "The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects," Empirical Economics, Springer, vol. 28(3), pages 571-580, July.
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    37. Steven S. Zahniser & Daniel Pick & Greg Pompelli & Mark J. Gehlhar, 2002. "Regionalism in the Western Hemisphere and Its Impact on U.S. Agricultural Exports: A Gravity-Model Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 791-797.
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