A structural analysis on Gravity of Trade regarding the possibility to remove distance from the model
The Gravity Model is the workhorse for empirical studies in International Economies and it is commonly used in explaining the trade flow between countries. Recently, several studies have showed the importance of taking into account the spatial effect. The standard procedure until now was to account the transport cost using geographical distance as a proxy, and the spatial effect trough a weighted matrix constructed on inverse distance. Two issues follow from this standard procedure: the first regards the biasness of the distance if used as a proxy of the transport costs, the second is related to the collinearity emerging if we use distance twice. So, several attempt were made in the recent literature having the scope of remove the distance. We propose a theoretically consistent procedure based on Anderson, Van Wincoop derivation model, and some ad-hoc tests, relating to this attempt. The empirical results based on a 22-years panel of OECD countries are conforting, and they allow us to estimate the model without the distance, if properly replaced by a set of fixed effects.
|Date of creation:||Nov 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.ersa.org
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.:
- Christopher Adam & David Cobham, 2005.
"Exchange Rate Regimes and Trade,"
CERT Discussion Papers
0505, Centre for Economic Reform and Transformation, Heriot Watt University.
- Christopher Adam & David Cobham, 2007. "Exchange rate regimes and trade," Money Macro and Finance (MMF) Research Group Conference 2006 9, Money Macro and Finance Research Group.
- James E. Anderson & Eric van Wincoop, 2003.
"Gravity with Gravitas: A Solution to the Border Puzzle,"
American Economic Review,
American Economic Association, vol. 93(1), pages 170-192, March.
- James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
- 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.
- James E. Anderson & Yoto V. Yotov, 2010.
"The Changing Incidence of Geography,"
American Economic Review,
American Economic Association, vol. 100(5), pages 2157-86, December.
- James E. Anderson & Yoto V. Yotov, 2008. "The Changing Incidence of Geography," NBER Working Papers 14423, National Bureau of Economic Research, Inc.
- James E. Anderson & Yoto V. Yotov, 2008. "The Changing Incidence of Geography," Boston College Working Papers in Economics 698, Boston College Department of Economics.
- James E Anderson, James E; Yotov, Yoto V., 2010.
"Specialisation: Pro and Anti-Globalizing 1990-2002,"
CAGE Online Working Paper Series
15, Competitive Advantage in the Global Economy (CAGE).
- James E. Anderson & Yoto V. Yotov, 2010. "Specialization: Pro- and Anti-globalizing, 1990-2002," NBER Working Papers 16301, National Bureau of Economic Research, Inc.
- James E. Anderson & Eric van Wincoop, 2004.
NBER Working Papers
10480, National Bureau of Economic Research, Inc.
- Thierry Mayer & Keith Head, 2002. "Illusory Border Effects: Distance Mismeasurement Inflates Estimates of Home Bias in Trade," Working Papers 2002-01, CEPII research center.
- Jan Mutl & Michael Pfaffermayr, 2011. "The Hausman test in a Cliff and Ord panel model," Econometrics Journal, Royal Economic Society, vol. 14(1), pages 48-76, February.
- Egger, Peter & Pfaffermayr, Michael, 2004. "The impact of bilateral investment treaties on foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 788-804, December.
- Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
- Baldwin, Richard & Taglioni, Daria, 2006.
"Gravity for Dummies and Dummies for Gravity Equations,"
CEPR Discussion Papers
5850, C.E.P.R. Discussion Papers.
- Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
- James P. LeSage & R. Kelley Pace, 2008. "Spatial Econometric Modeling Of Origin-Destination Flows," Journal of Regional Science, Wiley Blackwell, vol. 48(5), pages 941-967.
- Heejoon Kang & Michele Fratianni, 2006. "International Trade Efficiency, the Gravity Equation, and the Stochastic Frontier," Working Papers 2006-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa13p520. 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: (Gunther Maier)
If references are entirely missing, you can add them using this form.