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Estimating the gravity model without gravity using panel data

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  • Joakim Westerlund
  • Fredrik Wilhelmsson

Abstract

This article examines the effects of zero trade on the estimation of the gravity model using both simulated and real data with a panel structure, which is different from the more conventional cross-sectional structure. We begin by showing that the usual log-linear estimation method can result in highly deceptive inference when some observations are zero. As an alternative approach, we suggest using the poisson fixed effects estimator. This approach eliminates the problems of zero trade, controls for heterogeneity across countries, and is shown to perform well in small samples.

Suggested Citation

  • Joakim Westerlund & Fredrik Wilhelmsson, 2009. "Estimating the gravity model without gravity using panel data," Applied Economics, Taylor & Francis Journals, vol. 43(6), pages 641-649.
  • Handle: RePEc:taf:applec:v:43:y:2009:i:6:p:641-649 DOI: 10.1080/00036840802599784
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    References listed on IDEAS

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    Cited by:

    1. Patrik Tingvall & Andreas Poldahl, 2012. "Determinants of Firm R&D: The Role of Relationship-Specific Interactions for R&D Spillovers," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 395-411, December.
    2. de Sá Porto,Paulo C. & Canuto,Otaviano & Morini,Cristiano, 2015. "The impacts of trade facilitation measures on international trade flows," Policy Research Working Paper Series 7367, The World Bank.
    3. Shumilov, Andrei, 2017. "Оценивание Гравитационных Моделей Международной Торговли: Обзор Основных Подходов
      [Estimating gravity models of international trade: a survey of methods]
      ," MPRA Paper 79790, University Library of Munich, Germany.
    4. A Salim, Ruhu & Mahfuz Kabir, Mohammad, 2011. "Does More Trade Potential Remain in Arab States of the Gulf ?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 26, pages 217-243.
    5. Mariam Camarero & Estrella Gómez & Cecilio Tamarit, 2012. "The euro impact on trade. Long run evidence with structural breaks," Working Papers 1209, Department of Applied Economics II, Universidad de Valencia.
    6. Hess, Wolfgang & Persson, Maria & Rubenbauer, Stephanie & Gertheiss, Jan, 2013. "Using Lasso-Type Penalties to Model Time-Varying Covariate Effects in Panel Data Regressions – A Novel Approach Illustrated by the ‘Death of Distance’ in International Trade," Working Paper Series 961, Research Institute of Industrial Economics.
    7. Cyrus Teresa L., 2012. "Cultural Distance and Bilateral Trade," Global Economy Journal, De Gruyter, vol. 12(4), pages 1-25, December.
    8. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
    9. 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.
    10. Celia Melguizo & Vicente Royuela, 2017. "What drives migration moves across urban areas in Spain? Evidence from the Great Recession," Working Papers XREAP2017-03, Xarxa de Referència en Economia Aplicada (XREAP), revised Oct 2017.
    11. Bernhard Herz & Marco Wagner, 2010. "Multilateralism versus Regionalism!?," DEGIT Conference Papers c015_043, DEGIT, Dynamics, Economic Growth, and International Trade.
    12. Clément Bosquet & Hervé Boulhol, 2014. "Applying the GLM Variance Assumption to Overcome the Scale-Dependence of the Negative Binomial QGPML Estimator," Econometric Reviews, Taylor & Francis Journals, vol. 33(7), pages 772-784, October.
    13. Shumilov, Andrei, 2016. "Особенности Оценивания Гравитационных Моделей Международной Торговли
      [Estimating Gravity Models of International Trade: A Survey]
      ," MPRA Paper 75371, University Library of Munich, Germany.
    14. Knobel, Alexander, 2016. "The influence of services trade liberalization on service flows and industry productivity in CIS countries and Russia," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 44, pages 75-99.
    15. Montobbio, Fabio & Sterzi, Valerio, 2013. "The Globalization of Technology in Emerging Markets: A Gravity Model on the Determinants of International Patent Collaborations," World Development, Elsevier, vol. 44(C), pages 281-299.
    16. Valeria Costantini & Francesco Crespi, 2013. "Public policies for a sustainable energy sector: regulation, diversity and fostering of innovation," Journal of Evolutionary Economics, Springer, vol. 23(2), pages 401-429, April.
    17. Knobel Aleksandr, 2012. "The influence of services trade liberalization on service flows and industry productivity in CIS countries and Russia," EERC Working Paper Series 12/05e, EERC Research Network, Russia and CIS.
    18. Yang, Shang-Ho & Reed, Michael R. & Saghaian, Sayed H., 2012. "International Pork Trade and Foot-and-Mouth Disease," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124356, Agricultural and Applied Economics Association.
    19. Bernhard Herz & Marco Wagner, 2011. "The Dark Side of the Generalized System of Preferences," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 763-775, September.
    20. Estrella Gómez-Herrera, 2013. "Comparing alternative methods to estimate gravity models of bilateral trade," Empirical Economics, Springer, vol. 44(3), pages 1087-1111, June.
    21. Stephane Becuwe & Bertrand Blancheton & Leo Charles & Matthieu Clement, 2015. "Asymmetric influence of distance on french international trade 1850-1913," EcoMod2015 8552, EcoMod.
    22. Herz Bernhard & Wagner Marco, 2011. "Regionalism as a Building Block for Multilateralism," Global Economy Journal, De Gruyter, vol. 11(1), pages 1-25, March.
    23. Mogilat, A. & Salnikov, V., 2015. "Trade Effects Estimation for the Case of Eurasian Economic Space Countries: Application of Regional Gravity Model," Journal of the New Economic Association, New Economic Association, vol. 27(3), pages 80-108.
    24. Camilo Umana Dajud, 2016. "Do Visas Hinder International Trade in Goods?," Working Papers 2016-30, CEPII research center.
    25. repec:pjm:journl:v:xxi:y:2016:i:2:p:101-142 is not listed on IDEAS

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