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Gravity model specification and the effects of the Canada-U.S. border

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  • Howard J. Wall

Abstract

There is a well-established literature finding that the Canada-U.S. border has a large dampening effect on trade, is asymmetric, and differs across provinces. In this paper, I demonstrate that the standard gravity model used to obtain these results provides biased estimates of the volume of trade. I attribute this to heterogeneity bias and reestimate the effects of the border using a gravity model that allows for heterogeneous gravity equations. Doing so does not alter the general results of existing studies, although it does yield a border effect that is 40 percent larger, reverses the border's asymmetry, and indicates very different provincial effects.

Suggested Citation

  • Howard J. Wall, 2000. "Gravity model specification and the effects of the Canada-U.S. border," Working Papers 2000-024, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2000-024
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    References listed on IDEAS

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    5. Alan V. Deardorff, 2011. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 24, pages 267-293, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Nardella, Michele & Boccaletti, Stefano, 2004. "The Impact Of Eu And Us Agro-Food Non Tariff Measures On Exports From Developing Countries," 2004 Annual meeting, August 1-4, Denver, CO 20105, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Daniel J. Henderson & Daniel L. Millimet, 2008. "Is gravity linear?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 137-172.
    3. Philippa Dee, 2005. "The Australia-US Free Trade Agreement: An Assessment," Asia Pacific Economic Papers 345, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    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, vol. 87(Jan), pages 49-63.
    5. Martin Andresen, 2010. "The Geography of the Canada-United States Border Effect," Regional Studies, Taylor & Francis Journals, vol. 44(5), pages 579-594.
    6. Tembo, Gelson & Jayne, Thomas S., 2009. "Agricultural Trade Flows among Developing Countries: Do Regional Preferential Trade Agreements make a Difference?," 2009 Conference, August 16-22, 2009, Beijing, China 51733, International Association of Agricultural Economists.
    7. Anderson, Michael A. & Smith, Stephen L.S., 2007. "How does history matter? Hysteresis in Canadian trade," The North American Journal of Economics and Finance, Elsevier, vol. 18(3), pages 279-291, December.
    8. Carlucci, Domenico & De Blasi, Giuseppe & Santeramo, Fabio Gaetano & Seccia, Antonio, 2008. "New challenges and opportunities for Italian exports of table wines and high quality wines," MPRA Paper 8728, University Library of Munich, Germany.
    9. Abdoulganiour Almame Tinta, 2017. "The determinants of participation in global value chains: The case of ECOWAS," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1389252-138, January.
    10. Nardella, Michele & Boccaletti, Stefano, 2003. "The Impact Of Technical Barriers On Us-Eu Agro-Food Trade," 2003 Annual meeting, July 27-30, Montreal, Canada 22012, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Aswini Kumar Mishra & Jigar N. Gadhia & N. Kubendran & Makara Sahoo, 2015. "Trade Flows between India and Other BRICS Countries: An Empirical Analysis Using Gravity Model," Global Business Review, International Management Institute, vol. 16(1), pages 107-122, February.

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