IDEAS home Printed from https://ideas.repec.org/a/tpr/restat/v99y2017i3p478-485.html
   My bibliography  Save this article

Two-Way Models for Gravity

Author

Listed:
  • Koen Jochmans

    (Sciences Po)

Abstract

Empirical models for dyadic interactions between n agents often feature agent-specific parameters. Fixed-effect estimators of such models generally have bias of order n −1 , which is nonnegligible relative to their standard error. Therefore, confidence sets based on the asymptotic distribution have incorrect coverage. This paper looks at models with multiplicative unobservables and fixed effects. We derive moment conditions that are free of fixed effects and use them to set up estimators that are n -consistent, asymptotically normally distributed, and asymptotically unbiased. We provide Monte Carlo evidence for a range of models. We estimate a gravity equation as an empirical illustration.

Suggested Citation

  • Koen Jochmans, 2017. "Two-Way Models for Gravity," The Review of Economics and Statistics, MIT Press, vol. 99(3), pages 478-485, July.
    • Handle: RePEc:tpr:restat:v:99:y:2017:i:3:p:478-485
    as

    Download full text from publisher

    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00620
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

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

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ivan Fernandez-Val & Martin Weidner, 2013. "Individual and Time Effects in Nonlinear Panel Models with Large N, T," Papers 1311.7065, arXiv.org, revised Dec 2018.
    2. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    4. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j0031f620 is not listed on IDEAS
    5. repec:spo:wpmain:info:hdl:2441/6apm7lruv088iagm4rv2c33jtg is not listed on IDEAS
    6. Fernández-Val, Iván & Weidner, Martin, 2016. "Individual and time effects in nonlinear panel models with large N, T," Journal of Econometrics, Elsevier, vol. 192(1), pages 291-312.
    7. Iván Fernández‐Val & Joonhwah Lee, 2013. "Panel data models with nonadditive unobserved heterogeneity: Estimation and inference," Quantitative Economics, Econometric Society, vol. 4(3), pages 453-481, November.
    8. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09ij4j0h0h1 is not listed on IDEAS
    9. Daniel Aaronson & Lisa Barrow & William Sander, 2007. "Teachers and Student Achievement in the Chicago Public High Schools," Journal of Labor Economics, University of Chicago Press, vol. 25(1), pages 95-135.
    10. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09j0031f620 is not listed on IDEAS
    11. repec:hal:wpspec:info:hdl:2441/3vl5fe4i569nbr005tctlc8ll5 is not listed on IDEAS
    12. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09ij4j0h0h1 is not listed on IDEAS
    13. Guimaraes, Paulo & Portugal, Pedro, 2009. "A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed Effects," IZA Discussion Papers 3935, Institute of Labor Economics (IZA).
    14. William Greene, 2004. "The behaviour of the maximum likelihood estimator of limited dependent variable models in the presence of fixed effects," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 98-119, June.
    15. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-938, July.
    16. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    17. Donald, Stephen G. & Imbens, Guido W. & Newey, Whitney K., 2003. "Empirical likelihood estimation and consistent tests with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 117(1), pages 55-93, November.
    18. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Applications to Poisson Models," Econometrica, Econometric Society, vol. 52(3), pages 701-720, May.
    19. repec:hal:spmain:info:hdl:2441/6apm7lruv088iagm4rv2c33jtg is not listed on IDEAS
    20. Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
    21. Wooldridge, Jeffrey M., 1997. "Multiplicative Panel Data Models Without the Strict Exogeneity Assumption," Econometric Theory, Cambridge University Press, vol. 13(5), pages 667-678, October.
    22. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 225-238.
    23. Jinyong Hahn & Whitney Newey, 2004. "Jackknife and Analytical Bias Reduction for Nonlinear Panel Models," Econometrica, Econometric Society, vol. 72(4), pages 1295-1319, July.
    24. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    25. M. J. Andrews & L. Gill & T. Schank & R. Upward, 2008. "High wage workers and low wage firms: negative assortative matching or limited mobility bias?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 673-697, June.
    26. James J. Heckman & Thomas MaCurdy, 1982. "Corrigendum on A Life Cycle Model of Female Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 659-660.
    27. repec:spo:wpecon:info:hdl:2441/3vl5fe4i569nbr005tctlc8ll5 is not listed on IDEAS
    28. Manning, Willard G. & Mullahy, John, 2001. "Estimating log models: to transform or not to transform?," Journal of Health Economics, Elsevier, vol. 20(4), pages 461-494, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:hal:spmain:info:hdl:2441/75dbbb2hc596np6q8flqf6i79k is not listed on IDEAS
    2. repec:hal:wpspec:info:hdl:2441/75dbbb2hc596np6q8flqf6i79k is not listed on IDEAS
    3. repec:spo:wpecon:info:hdl:2441/75dbbb2hc596np6q8flqf6i79k is not listed on IDEAS
    4. repec:spo:wpmain:info:hdl:2441/75dbbb2hc596np6q8flqf6i79k is not listed on IDEAS
    5. Karyne B. Charbonneau, 2014. "Multiple Fixed Effects in Binary Response Panel Data Models," Staff Working Papers 14-17, Bank of Canada.
    6. Geert Dhaene & Koen Jochmans, 2015. "Split-panel Jackknife Estimation of Fixed-effect Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(3), pages 991-1030.
    7. Koen Jochmans & Vincenzo Verardi, 2022. "Instrumental‐variable estimation of exponential‐regression models with two‐way fixed effects with an application to gravity equations," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(6), pages 1121-1137, September.
    8. J. M. C. Santos Silva & Silvana Tenreyro, 2022. "The Log of Gravity at 15," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(3), pages 423-437, September.
    9. Kareem, Fatima Olanike & Martinez-Zarzoso, Inmaculada & Brümmer, Bernhard, 2016. "Fitting the Gravity Model when Zero Trade Flows are Frequent: a Comparison of Estimation Techniques using Africa's Trade Data," GlobalFood Discussion Papers 230588, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    10. Weidner, Martin & Zylkin, Thomas, 2021. "Bias and consistency in three-way gravity models," Journal of International Economics, Elsevier, vol. 132(C).
    11. Chen, Mingli & Fernández-Val, Iván & Weidner, Martin, 2021. "Nonlinear factor models for network and panel data," Journal of Econometrics, Elsevier, vol. 220(2), pages 296-324.
    12. repec:hal:spmain:info:hdl:2441/f6h8764enu2lskk9p2m9mgp8l is not listed on IDEAS
    13. repec:spo:wpmain:info:hdl:2441/f6h8764enu2lskk9p2m9mgp8l is not listed on IDEAS
    14. repec:hal:spmain:info:hdl:2441/2etjsneok98utpcm5s44jn4dlh is not listed on IDEAS
    15. Mario Larch & Yoto V. Yotov, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," CESifo Working Paper Series 6020, CESifo.
    16. repec:spo:wpecon:info:hdl:2441/2etjsneok98utpcm5s44jn4dlh is not listed on IDEAS
    17. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p2m9mgp8l is not listed on IDEAS
    18. repec:hal:wpspec:info:hdl:2441/f6h8764enu2lskk9p2m9mgp8l is not listed on IDEAS
    19. repec:hal:wpspec:info:hdl:2441/2etjsneok98utpcm5s44jn4dlh is not listed on IDEAS
    20. repec:spo:wpmain:info:hdl:2441/2etjsneok98utpcm5s44jn4dlh is not listed on IDEAS
    21. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    22. Mariam Camarero & Sergi Moliner & Cecilio Tamarit, 2021. "Is there a euro effect in the drivers of US FDI? New evidence using Bayesian model averaging techniques," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(4), pages 881-926, November.
    23. Chernozhukov, Victor & Fernández-Val, Iván & Weidner, Martin, 2024. "Network and panel quantile effects via distribution regression," Journal of Econometrics, Elsevier, vol. 240(2).
    24. Juliana D. Araujo & Povilas Lastauskas & Chris Papageorgiou, 2017. "Evolution of Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(7), pages 1517-1554, October.
    25. French, Scott, 2016. "The composition of trade flows and the aggregate effects of trade barriers," Journal of International Economics, Elsevier, vol. 98(C), pages 114-137.
    26. Fally, Thibault, 2015. "Structural gravity and fixed effects," Journal of International Economics, Elsevier, vol. 97(1), pages 76-85.
    27. Benedikt Heid & Mario Larch & Yoto V. Yotov, 2021. "Estimating the effects of non‐discriminatory trade policies within structural gravity models," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 376-409, February.
    28. David W. Hughes, 2021. "Estimating Nonlinear Network Data Models with Fixed Effects," Boston College Working Papers in Economics 1058, Boston College Department of Economics.
    29. Claudia Pigini & Alessandro Pionati & Francesco Valentini, 2025. "Grouped fixed effects regularization for binary choice models," Papers 2502.06446, arXiv.org.
    30. Koen Jochmans & Martin Weidner, 2019. "Fixed‐Effect Regressions on Network Data," Econometrica, Econometric Society, vol. 87(5), pages 1543-1560, September.
    31. Pionati, Alessandro, 2025. "Latent grouped structures in panel data: a review," MPRA Paper 123954, University Library of Munich, Germany.
    32. Francesco Bartolucci & Claudia Pigini & Francesco Valentini, 2024. "MCMC conditional maximum likelihood for the two-way fixed-effects logit," Econometric Reviews, Taylor & Francis Journals, vol. 43(6), pages 379-404, July.

    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:tpr:restat:v:99:y:2017:i:3:p:478-485. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: The MIT Press (email available below). General contact details of provider: https://direct.mit.edu/journals .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.