IDEAS home Printed from https://ideas.repec.org/p/cda/wpaper/06-13.html
   My bibliography  Save this paper

Estimation of Country-Pair Data Models Controlling for Clustered Errors: with International Trade Applications

Author

Listed:
  • A. Colin Cameron
  • Natalia Golotvina

    (Department of Economics, University of California Davis)

Abstract

We consider cross-section regression models for country-pair data, such as gravity models for trade volume between countries or models of exchange rate volatility, allowing for the presence of country-specific errors. This induces clustered errors in a nonstandard setting. OLS standard errors that ignore this clustering are greatly underestimated. Under the assumption of random country-specific effects we provide analytical results that permit more efficient GLS estimation even in settings where the number of unique country-pairs is very large. We include applications to international data on real exchange rates and on bilateral trade that provided the motivation for this paper. The results are more generally applicable to regression with paired data.

Suggested Citation

  • A. Colin Cameron & Natalia Golotvina, 2005. "Estimation of Country-Pair Data Models Controlling for Clustered Errors: with International Trade Applications," Working Papers 613, University of California, Davis, Department of Economics.
  • Handle: RePEc:cda:wpaper:06-13
    as

    Download full text from publisher

    File URL: http://wp.econ.ucdavis.edu/06-13.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, January.
    2. Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, vol. 20(3), pages 363-368, May.
    3. Ruud, Paul A., 1984. "Tests of Specification in Econometrics," Department of Economics, Working Paper Series qt4kq8m0hf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    4. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
    5. Laura Serlenga & Yongcheol Shin, 2004. "Gravity Models of the Intra-EU Trade: Application of the Hausman-Taylor Estimation in Heterogeneous Panels with Common Time-specific Factors," ESE Discussion Papers 105, Edinburgh School of Economics, University of Edinburgh.
    6. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
    7. Kloek, T, 1981. "OLS Estimation in a Model Where a Microvariable Is Explained by Aggregates and Contemporaneous Disturbances Are Equicorrelated," Econometrica, Econometric Society, vol. 49(1), pages 205-207, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Douglas L. Campbell, 2010. "History, Culture, and Trade: A Dynamic Gravity Approach," EERI Research Paper Series EERI_RP_2010_26, Economics and Econometrics Research Institute (EERI), Brussels.
    3. Müller, Oliver & Uhde, André, 2013. "Cross-border bank lending: Empirical evidence on new determinants from OECD banking markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 136-162.

    More about this item

    Keywords

    clustered errors; random effects; country-pair data; international trade data; exchange rate data;

    JEL classification:

    • C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    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:cda:wpaper:06-13. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Scott Dyer). General contact details of provider: http://edirc.repec.org/data/educdus.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.