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Semi-mixed effects gravity models for bilateral trade

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  • Isabel Proença
  • Stefan Sperlich
  • Duygu Savaşcı

Abstract

In recent years, different alternatives have been suggested to specify and estimate gravity models for bilateral trade. Presently, the so-called Poisson pseudomaximum likelihood (PPML) with log-linear index is probably the most commonly used method. A method is proposed for panel data that targets to reconcile the pros and cons of fixed and random effects models, respectively. It applies equally to two- and three-way panel models and those with country-specific time-varying effects. It allows to filter out potential correlation between observed and unobserved heterogeneity and to identify the effects of time-invariant factors. It can also be used when panels are short in time, and to other specifications than the PPML-like gamma PML, zero-inflated, or Tobit-like models. We introduce and illustrate the proposed estimator with a study of bilateral trade flows across the European Union before the recent economic crisis. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Isabel Proença & Stefan Sperlich & Duygu Savaşcı, 2015. "Semi-mixed effects gravity models for bilateral trade," Empirical Economics, Springer, vol. 48(1), pages 361-387, February.
    • Handle: RePEc:spr:empeco:v:48:y:2015:i:1:p:361-387
    DOI: 10.1007/s00181-014-0891-x
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    More about this item

    Keywords

    Gravity models; Regional trade; Panel econometrics; F10; F15; C14; C23;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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