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MCMC estimation of panel gravity models in the presence of network dependence

Author

Listed:
  • LeSage, James P.
  • Fischer, Manfred M.

Abstract

Past focus in the panel gravity literature has been on multidimensional fixed effects specifications in an effort to accommodate heterogeneity. After introducing fixed effects for each origin- destination dyad and time-period speciffic effects, we find evidence of cross-sectional dependence in flows. We propose a simultaneous dependence gravity model that allows for network dependence in flows, along with computationally efficient MCMC estimation methods that produce a Monte Carlo integration estimate of log-marginal likelihood useful for model comparison. Application of the model to a panel of trade flows points to network spillover effects, suggesting the presence of network dependence and biased estimates from conventional trade flow specifications.

Suggested Citation

  • LeSage, James P. & Fischer, Manfred M., 2018. "MCMC estimation of panel gravity models in the presence of network dependence," Working Papers in Regional Science 2018/07, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus046:6550
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