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A fast, easy, and efficient estimator for the trade flux between heterogeneous economies

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  • Sova, Robert
  • Sova, Anamaria

Abstract

Compared to time-series or cross-section analyses, panel data allow us to control for individual specific characteristics - possibly unobservable - which may be correlated with certain explanatory variables in the specification of an economic relationship. Not controlling for unobservables leads to obtaining biased results. After controlling for such unobservable characteristics, we calculate efficient estimates of a trade flux equation between heterogeneous economies.

Suggested Citation

  • Sova, Robert & Sova, Anamaria, 2007. "A fast, easy, and efficient estimator for the trade flux between heterogeneous economies," MPRA Paper 3457, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:3457
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    File URL: https://mpra.ub.uni-muenchen.de/3457/1/MPRA_paper_3457.pdf
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    References listed on IDEAS

    as
    1. Céline CARRERE, 2003. "Revisiting the Effects of Regional Trading Agreements on trade flows with Proper Specification of the Gravity Model," Working Papers 200310, CERDI.
    2. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
    3. André Sapir & Chantal Winter, 1994. "Service trade," ULB Institutional Repository 2013/8176, ULB -- Universite Libre de Bruxelles.
    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. Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, vol. 66(1), pages 25-31, January.
    6. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    7. Peter Egger, 2002. "An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials," The World Economy, Wiley Blackwell, vol. 25(2), pages 297-312, February.
    8. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    international trade; POLS estimators; individual heterogeneity; fixed effects; random effects;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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