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The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects

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  • Peter Egger
  • Michael Pfaffermayr

Abstract

We argue that the proper specification of a panel gravity model should include main (exporter, importer, and time) as well as time invariant exporter-by-importer (bilateral) interaction effects. In a panel of 11 APEC countries, the latter are highly significant and account for the largest part of variation. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • 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.
  • Handle: RePEc:spr:empeco:v:28:y:2003:i:3:p:571-580
    DOI: 10.1007/s001810200146
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    Keywords

    Key words: Gravity equation; Panel econometrics; JEL classification: C33; F14; F15;

    JEL classification:

    • 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
    • F15 - International Economics - - Trade - - - Economic Integration

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