Gravity Models of the Intra-EU Trade: Application of the Hausman-Taylor Estimation in Heterogeneous Panels with Common Time-specific Factors
In this paper we follow recent developments of panel data studies and explicitly allow for the existence of unobserved common time-specific factors where their individual responses are also allowed to be heterogeneous across cross section units. In the context of this extended panel data framework we generalize the Hausman-Taylor estimation methodology and develop the associated econometric theory. We apply our proposed estimation technique along with the conventional panel data approaches to a comprehensive analysis of the gravity equation of bilateral trade flows amongst the 15 European countries over 1960-2001. Empirical results clearly demonstrate that our proposed approach fits the data reasonably well and provides much more sensible results than the conventional approach based on the fixed time dummies. These findings may highlight the importance of allowing for a certain degree of cross section dependence through unobserved heterogeneous time specific common effects, otherwise the resulting estimates would be severely biased.
|Date of creation:||Feb 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.econ.ed.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Egger, Peter, 2004.
"On the Problem of Endogenous Unobserved Effects in the Estimation of Gravity Models,"
Journal of Economic Integration,
Center for Economic Integration, Sejong University, vol. 19, pages 182-191.
- Peter Egger, . "On the Problem of Endogenous Unobserved Effects in the Estimation of Gravity Models," WIFO Working Papers 132, WIFO.
- Peter Egger, .
"A Note on the Proper Econometric Specification of the Gravity Equation,"
WIFO Working Papers
- Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, vol. 66(1), pages 25-31, January.
- Hummels, David & Levinsohn, James, 1995.
"Monopolistic Competition and International Trade: Reconsidering the Evidence,"
The Quarterly Journal of Economics,
MIT Press, vol. 110(3), pages 799-836, August.
- Hummels, D. & Levinsohn, J., 1993. "Monopolistic Competition and International Trade: Reconsidering the Evidence," Working Papers 339, Research Seminar in International Economics, University of Michigan.
- David Hummels & James Levinsohn, 1993. "Monopolistic Competition and International Trade: Reconsidering the Evidence," NBER Working Papers 4389, National Bureau of Economic Research, Inc.
- Simon J. Evenett & Wolfgang Keller, 1996.
"On Theories Explaining the Success of the Gravity Equation,"
9608001, EconWPA, revised 13 Jun 1997.
- Simon J. Evenett & Wolfgang Keller, 2002. "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 281-316, April.
- Evenett, S. J. & Keller, W., 1994. "On Theories Explaining the Success of the Gravity Equation," Working papers 9713, Wisconsin Madison - Social Systems.
- Simon J. Evenett & Wolfgang Keller, 1998. "On Theories Explaining the Success of the Gravity Equation," NBER Working Papers 6529, National Bureau of Economic Research, Inc.
- Ahn, Seung Chan & Hoon Lee, Young & Schmidt, Peter, 2001. "GMM estimation of linear panel data models with time-varying individual effects," Journal of Econometrics, Elsevier, vol. 101(2), pages 219-255, April.
- Jushan Bai & Serena Ng, 2000.
"Determining the Number of Factors in Approximate Factor Models,"
Econometric Society World Congress 2000 Contributed Papers
1504, Econometric Society.
- Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
- Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Boston College Working Papers in Economics 440, Boston College Department of Economics.
- André Sapir & Alexis Jacquemin, 1991.
"Competition and imports in the European market,"
ULB Institutional Repository
2013/8220, ULB -- Universite Libre de Bruxelles.
- Brada, Josef C & Mendez, Jose, 1988. "Exchange Rate Risk, Exchange Rate Regime and the Volume of International Trade," Kyklos, Wiley Blackwell, vol. 41(2), pages 263-80.
- Bougheas, Spiros & Demetriades, Panicos O. & Morgenroth, Edgar L. W., 1999.
"Infrastructure, transport costs and trade,"
Journal of International Economics,
Elsevier, vol. 47(1), pages 169-189, February.
- Spiros Bougheas & Panicos Demetriades & Edgar Morgenroth, 1996. "Infrastructure, Transport Costs and Trade," Keele Department of Economics Discussion Papers (1995-2001) 96/7, Department of Economics, Keele University.
- 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.
- László Mátyás & László Kónya & Mark N. Harris, 2000. "Modelling Export Activity of Eleven APEC Countries," Melbourne Institute Working Paper Series wp2000n05, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
- Jean-François Brun & Céline Carrère & Patrick Guillaumont & Jaime de Melo, 2005.
"Has Distance Died? Evidence from a Panel Gravity Model,"
World Bank Economic Review,
World Bank Group, vol. 19(1), pages 99-120.
- Brun, Jean-François & Carrère, Céline & de Melo, Jaime & Guillaumont, Patrick, 2002. "Has Distance Died? Evidence from a Panel Gravity Model," CEPR Discussion Papers 3500, C.E.P.R. Discussion Papers.
- Jean-François BRUN & Céline CARRERE & Patrick GUILLAUMONT & Jaime MELO DE, 2002. "Has Distance Died? Evidence from a Panel Gravity Model," Working Papers 200215, CERDI.
- Jeffrey A. Frankel and Shang-Jin Wei., 1993.
"Emerging Currency Blocs,"
Center for International and Development Economics Research (CIDER) Working Papers
C93-026, University of California at Berkeley.
- Markusen, James R & Wigle, Randall M, 1990. "Explaining the Volume of North-South Trade," Economic Journal, Royal Economic Society, vol. 100(403), pages 1206-15, December.
- Amemiya, Takeshi & MaCurdy, Thomas E, 1986. "Instrumental-Variable Estimation of an Error-Components Model," Econometrica, Econometric Society, vol. 54(4), pages 869-80, July.
- Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
- Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
- Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann, 2003. "Augmented Gravity Model: An Empirical Application to Mercosur-European Union Trade Flows," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 291-316, November.
- Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, vol. 20(3), pages 363-368, 05.
When requesting a correction, please mention this item's handle: RePEc:edn:esedps:105. 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: (Gina Reddie)
If references are entirely missing, you can add them using this form.