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A gravity model of virtual water trade

  • Fracasso, Andrea

This work investigates the determinants of virtual water trade (VWT) flows by means of an estimated gravity model of trade applied to the virtual water embodied in the agricultural goods exchanged across countries. In line with the recent literature on the gravity model, the paper presents a battery of estimation methods: cross-section and panel, OLS and pseudo maximum likelihood, with and without two-way fixed effects. The analysis shows that bilateral VWT flows are affected by the classical determinants of trade, but also by national water endowments as well as by the level of pressure on water resources. These general findings are robust, even though some variation can be observed across the estimation methods and, in particular, when smaller sub-samples of countries (such as continents and regional groups) are considered. This contributes to account for the mixed evidence in the literature on the importance of water endowments for the VWT flows.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 54124.

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Date of creation: Feb 2014
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Handle: RePEc:pra:mprapa:54124
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  1. Eaton, Jonathan & Kortum, Samuel, 2001. "Trade in capital goods," European Economic Review, Elsevier, vol. 45(7), pages 1195-1235.
  2. Keith Head & Thierry Mayer & John Ries, 2008. "The erosion of colonial trade linkages after independence," Working Papers hal-01066116, HAL.
  3. Manning, Willard G. & Mullahy, John, 2001. "Estimating log models: to transform or not to transform?," Journal of Health Economics, Elsevier, vol. 20(4), pages 461-494, July.
  4. repec:hrv:faseco:3228230 is not listed on IDEAS
  5. Wichelns, Dennis, 2004. "The policy relevance of virtual water can be enhanced by considering comparative advantages," Agricultural Water Management, Elsevier, vol. 66(1), pages 49-63, April.
  6. Baldwin, Richard, 2007. "Trade Effects of the Euro: a Comparison of Estimators," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 780-818.
  7. James E. Anderson, 2010. "The Gravity Model," NBER Working Papers 16576, National Bureau of Economic Research, Inc.
  8. Stefano Schiavo & Andrea Vaona, 2006. "Poolability and the finance-growth nexus: a cautionary note," Working Papers hal-01065644, HAL.
  9. Simon J. Evenett & Wolfgang Keller, 1996. "On Theories Explaining the Success of the Gravity Equation," International Trade 9608001, EconWPA, revised 13 Jun 1997.
  10. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
  11. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  12. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  13. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  14. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
  15. Jeffrey J. Reimer & Man Li, 2010. "Trade Costs and the Gains from Trade in Crop Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(4), pages 1024-1039.
  16. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  17. Novo, P. & Garrido, A. & Varela-Ortega, C., 2009. "Are virtual water "flows" in Spanish grain trade consistent with relative water scarcity?," Ecological Economics, Elsevier, vol. 68(5), pages 1454-1464, March.
  18. Reimer, Jeffrey J., 2012. "On the economics of virtual water trade," Ecological Economics, Elsevier, vol. 75(C), pages 135-139.
  19. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  20. de Fraiture, Charlotte & Cai, X & Amarasinghe, Upali & Rosegrant, M. & Molden, David, 2004. "Does international cereal trade save water?: the impact of virtual water trade on global water use," IWMI Research Reports H035342, International Water Management Institute.
  21. Baier, Scott L. & Bergstrand, Jeffrey H., 2009. "Estimating the effects of free trade agreements on international trade flows using matching econometrics," Journal of International Economics, Elsevier, vol. 77(1), pages 63-76, February.
  22. M. Kumar & O. Singh, 2005. "Virtual Water in Global Food and Water Policy Making: Is There a Need for Rethinking?," Water Resources Management, Springer, vol. 19(6), pages 759-789, December.
  23. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
  24. Ansink, Erik, 2010. "Refuting two claims about virtual water trade," Ecological Economics, Elsevier, vol. 69(10), pages 2027-2032, August.
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