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Estimating Gravity Equations: Theory Implications, Econometric Developments, and Practical Recommendations

Author

Listed:
  • Mario Larch

    (University of Bayreuth)

  • Serge Shikher

    (United States International Trade Commission)

  • Yoto Yotov

    (School of Economics, Drexel University)

Abstract

We trace the developments in the empirical trade literature to make fifteen recommendations for estimating gravity equations, which are structured in three categories: data, estimating equation, and heterogeneity. We also offer practical tips and identify areas where further research is needed. Based on these recommendations, we specify a comprehensive estimating model, which can serve as a benchmark for gravity estimations even when it is not possible to implement all of our recommendations. The proposed methods should be useful for gravity estimations beyond international trade, e.g., migration, foreign investment, cross-border patenting, and other flows.

Suggested Citation

  • Mario Larch & Serge Shikher & Yoto Yotov, 2025. "Estimating Gravity Equations: Theory Implications, Econometric Developments, and Practical Recommendations," Working Papers 2025001, Center for Global Policy Analysis, LeBow College of Business, Drexel University.
    • Handle: RePEc:drx:wpaper:2025001
    as

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    File URL: https://www.lebow.drexel.edu/sites/default/files/2025-01/wp2025001-gravity-equations.pdf
    File Function: First version, 2025
    Download Restriction: no
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    More about this item

    Keywords

    Gravity equation; Estimation; Recommendations; Practical tips;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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