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Latent Multilateral Trade Resistance Indices: Theory and Evidence

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  • Wilfried Koch
  • James P. LeSage

Abstract

type="main" xml:id="sjpe12074-abs-0001"> Anderson and van Wincoop (American Economic Review (2003), 69 :106) make a convincing argument that traditional gravity equation estimates are biased by the omission of multilateral resistance terms. They show that these multilateral resistance terms are implicitly defined by a system of non-linear equations involving all regions' GDP shares and a global interdependence structure involving trade costs. We show how linearizing the system of non-linear relationships around a free trade world leads to an interdependence structure that can be used as a Bayesian prior to produce statistical estimates of the inward and outward multilateral resistance indices. This reflects a statistical approach that has advantages over the non-stochastic numerical approach used by Anderson and van Wincoop (2003) to solve for these indices.

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  • Wilfried Koch & James P. LeSage, 2015. "Latent Multilateral Trade Resistance Indices: Theory and Evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(3), pages 264-290, July.
    • Handle: RePEc:bla:scotjp:v:62:y:2015:i:3:p:264-290
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    References listed on IDEAS

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    1. Kristian Behrens & Cem Ertur & Wilfried Koch, 2012. "‘Dual’ Gravity: Using Spatial Econometrics To Control For Multilateral Resistance," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(5), pages 773-794, August.
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    3. Debarsy, Nicolas & LeSage, James, 2018. "Flexible dependence modeling using convex combinations of different types of connectivity structures," Regional Science and Urban Economics, Elsevier, vol. 69(C), pages 48-68.
    4. Le, Thai-Ha & Nguyen, Canh Phuc, 2024. "Dynamics of Bilateral Trade Under Economic Policy Uncertainty," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 49(3), pages 83-105, September.
    5. Carlos Llano-Verduras & Santiago Pérez-Balsalobre & Ana Rincón-Aznar, 2021. "Market fragmentation and the rise of sub-national regulation," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 67(3), pages 765-797, December.
    6. Clément Gorin, 2016. "Patterns and determinants of inventors' mobility across European urban areas," Working Papers halshs-01313086, HAL.
    7. James Paul LeSage & Manfred M. Fischer, 2020. "Cross-sectional dependence model specifications in a static trade panel data setting," Journal of Geographical Systems, Springer, vol. 22(1), pages 5-46, January.
    8. Philipp Piribauer & Jesús Crespo Cuaresma, 2016. "Bayesian Variable Selection in Spatial Autoregressive Models," Spatial Economic Analysis, Taylor & Francis Journals, vol. 11(4), pages 457-479, October.
    9. Manfred M. Fischer & James P. LeSage, 2020. "Network dependence in multi-indexed data on international trade flows," Journal of Spatial Econometrics, Springer, vol. 1(1), pages 1-26, December.
    10. Çekyay, Bora & Kabak, Özgür & Ülengin, Füsun & Ulengin, Burç & Toktaş Palut, Peral & Özaydın, Özay, 2020. "A multi-commodity network flow and gravity model integration for analyzing impact of road transport quotas on international trade," Research in Transportation Economics, Elsevier, vol. 80(C).
    11. Rodolphe Desbordes & Markus Eberhardt, 2019. "Gravity," Discussion Papers 2019-02, University of Nottingham, GEP.
    12. Llano, C. & De la Mata, T. & Díaz-Lanchas, J. & Gallego, N., 2017. "Transport-mode competition in intra-national trade: An empirical investigation for the Spanish case," Transportation Research Part A: Policy and Practice, Elsevier, vol. 95(C), pages 334-355.

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