Bayesian Inference in the Gravity Model
his paper seeks to empirically extend the�gravity model, which has been widely used to analyze volumes of trade between pairs of countries. We generalize the basic threshold tobit model by allowing for the inclusion of country-specific effects into the analysis and also show how one can explore the relationship between trade volumes and a given covariate via a non-parametric approach. We use our derived methodology to investigate the impact of a particular aspect of institutionsâ€”the enforcement of contractsâ€”on bilateral trade. We find that contract enforcement matters in predicting trade volumes for all types of goods, that it matters most for the trade of differentiated goods, and that the relationship between contract enforcement and trade in our threshold tobit exhibits some nonlinearities.
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|Date of creation:||15 Feb 2007|
|Date of revision:|
|Publication status:||Published in Journal of Applied Econometrics, June/July 2007, vol. 22 no. 4, pp. 817-838|
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