Panel Data Gravity Models of International Trade

58 Pages Posted: 20 Feb 2014

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics; Syracuse University - Maxwell School of Citizenship and Public Affairs

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment; ETH Zürich; Ludwig-Maximilians University of Munich; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Michael Pfaffermayr

University of Innsbruck - Department of Economics; Austrian Institute of Economic Research

Date Written: January 31, 2014

Abstract

One of the oldest and largest literatures in empirical economics is concerned with the estimation of demand and supply of goods, services, and factors across national or subnational borders (see Leamer and Levinsohn, 1995). The respective empirical models specified and estimated are often referred to as gravity models, accruing to their functional-form similarity to Newton’s law of gravity in physics. As Newton’s model, gravity models of international trade or factor flows are (at least) double-indexed, involving a region or country of origin and a region or country of destination. Pooling such demand equations across pairs or regional units or even across cross-sectional units and time inevitably leads to a panel data structure of the data. This chapter is concerned with a host of issues that arise with the estimation of such models, respecting their panel econometric generic structure. The issues covered range from the estimation of double-indexed versus higher-indexed models, the estimation of fixed effects versus random effects models, issues of endogeneity, of approximation, estimation with missing or zero trade flow data, structural versus reduced-form estimation, the role of dynamics or cross-sectional dependence, and issues with specific applications.

Keywords: panel data, gravity models, international trade

JEL Classification: C230, C120, F140

Suggested Citation

Baltagi, Badi H. and Egger, Peter H. and Pfaffermayr, Michael, Panel Data Gravity Models of International Trade (January 31, 2014). CESifo Working Paper Series No. 4616, Available at SSRN: https://ssrn.com/abstract=2398292 or http://dx.doi.org/10.2139/ssrn.2398292

Badi H. Baltagi

Syracuse University ( email )

426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-1630 (Phone)
315-443-1081 (Fax)

HOME PAGE: http://https://pbaltagi.wix.com/badibaltagi

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Syracuse University - Maxwell School of Citizenship and Public Affairs ( email )

400 Eggers Hall
Syracuse, NY 13244
United States

Peter H. Egger (Contact Author)

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment ( email )

Poschingerstr. 5
Munich, DE-81679
Germany
+49 0 89 9224 1238 (Phone)
+49 0 89 985369 (Fax)

HOME PAGE: http://www.cesifo-group.de/portal/page?_pageid=36,425628&_dad=portal&_schema=PORTAL

ETH Zürich ( email )

LEE G104
Leonhardstrasse 21
Zurich
Switzerland

Ludwig-Maximilians University of Munich

Schackstr. 4
Munich, 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Michael Pfaffermayr

University of Innsbruck - Department of Economics ( email )

Universitaetsstrasse 15
A-6020, Innsbruck
Austria
+43 512 507 7359 (Phone)

HOME PAGE: http://homepage.uibk.ac.at/~c43236/

Austrian Institute of Economic Research ( email )

P.O. Box 91
Wien, A-1103
Austria
+43 1 798 26 01-253 (Phone)
+43 1 798 93 86 (Fax)

HOME PAGE: http://www.wifo.ac.at/Michael.Pfaffermayr/

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
2,010
Abstract Views
5,291
Rank
14,827
PlumX Metrics