IDEAS home Printed from https://ideas.repec.org/p/wiw/wiwrsa/ersa13p520.html
   My bibliography  Save this paper

A structural analysis on Gravity of Trade regarding the possibility to remove distance from the model

Author

Listed:
  • Rodolfo Metulini

Abstract

The Gravity Model is the workhorse for empirical studies in International Economies and it is commonly used in explaining the trade flow between countries. Recently, several studies have showed the importance of taking into account the spatial effect. The standard procedure until now was to account the transport cost using geographical distance as a proxy, and the spatial effect trough a weighted matrix constructed on inverse distance. Two issues follow from this standard procedure: the first regards the biasness of the distance if used as a proxy of the transport costs, the second is related to the collinearity emerging if we use distance twice. So, several attempt were made in the recent literature having the scope of remove the distance. We propose a theoretically consistent procedure based on Anderson, Van Wincoop derivation model, and some ad-hoc tests, relating to this attempt. The empirical results based on a 22-years panel of OECD countries are conforting, and they allow us to estimate the model without the distance, if properly replaced by a set of fixed effects.

Suggested Citation

  • Rodolfo Metulini, 2013. "A structural analysis on Gravity of Trade regarding the possibility to remove distance from the model," ERSA conference papers ersa13p520, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa13p520
    as

    Download full text from publisher

    File URL: https://www-sre.wu.ac.at/ersa/ersaconfs/ersa13/ERSA2013_paper_00520.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Christopher Adam & David Cobham, 2007. "Exchange Rate Regimes And Trade," Manchester School, University of Manchester, vol. 75(s1), pages 44-63, September.
    4. Jan Mutl & Michael Pfaffermayr, 2011. "The Hausman test in a Cliff and Ord panel model," Econometrics Journal, Royal Economic Society, vol. 14, pages 48-76, February.
    5. Michele FRATIANNI, 2007. "The Gravity Equation in International Trade," Working Papers 307, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    6. Thierry Mayer & Keith Head, 2002. "Illusory Border Effects: Distance Mismeasurement Inflates Estimates of Home Bias in Trade," Working Papers 2002-01, CEPII research center.
    7. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    8. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
    9. Peter H. Egger & Michael Pfaffermayr, 2013. "The Pure Effects of European Integration on Intra-EU Core and Periphery Trade," The World Economy, Wiley Blackwell, vol. 36(6), pages 701-712, June.
    10. James E. Anderson & Yoto V. Yotov, 2012. "Gold Standard Gravity," NBER Working Papers 17835, National Bureau of Economic Research, Inc.
    11. James E. Anderson & Yoto V. Yotov, 2010. "The Changing Incidence of Geography," American Economic Review, American Economic Association, vol. 100(5), pages 2157-2186, December.
    12. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
    13. Heejoon Kang & Michele Fratianni, 2006. "International Trade Efficiency, the Gravity Equation, and the Stochastic Frontier," Working Papers 2006-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    14. Egger, Peter & Pfaffermayr, Michael, 2004. "The impact of bilateral investment treaties on foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 788-804, December.
    15. James P. LeSage & R. Kelley Pace, 2008. "Spatial Econometric Modeling Of Origin‐Destination Flows," Journal of Regional Science, Wiley Blackwell, vol. 48(5), pages 941-967, December.
    16. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    17. James E. Anderson & Yoto V. Yotov, 2010. "Specialization: Pro- and Anti-globalizing, 1990-2002," NBER Working Papers 16301, National Bureau of Economic Research, Inc.
    18. Christopher Adam & David Cobham, 2007. "Modelling multilateral trade resistance in a gravity model with exchange rate regimes," CDMA Conference Paper Series 0702, Centre for Dynamic Macroeconomic Analysis.
    19. Kapoor, Mudit & Kelejian, Harry H. & Prucha, Ingmar R., 2007. "Panel data models with spatially correlated error components," Journal of Econometrics, Elsevier, vol. 140(1), pages 97-130, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.
    2. 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.
    3. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    4. Mireille NTSAMA ETOUNDI, 2014. "Impact de la rente pétrolière sur la demande des pays frontaliers du Cameroun," Working Papers 201417, CERDI.
    5. Anderson, James E. & Yotov, Yoto V., 2016. "Terms of trade and global efficiency effects of free trade agreements, 1990–2002," Journal of International Economics, Elsevier, vol. 99(C), pages 279-298.
    6. Mireille S. Ntsama Etoundi, 2015. "Impact de la rente pétrolière sur la demande des pays frontaliers du Cameroun," CERDI Working papers halshs-01027500, HAL.
    7. Christopher Adam & David Cobham, 2008. "Alternative Exchange Rate Regimes for MENA countries: Gravity Model Estimates of the Trade Effects," CERT Discussion Papers 0803, Centre for Economic Reform and Transformation, Heriot Watt University.
    8. María Pía Olivero & Yoto V. Yotov, 2012. "Dynamic gravity: endogenous country size and asset accumulation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(1), pages 64-92, February.
    9. Heerman, Kari E. & Sheldon, Ian M., 2018. "Increased economic integration in the Asia-Pacific Region: What might be the potential impact on agricultural trade?," 2018 Annual Meeting, August 5-7, Washington, D.C. 274279, Agricultural and Applied Economics Association.
    10. Michele Fratianni & Francesco Marchionne, 2011. "The Limits to Integration," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 9, Edward Elgar Publishing.
    11. Wong, Kin-Ming & Chong, Terence Tai-Leung, 2016. "Does monetary policy matter for trade?," International Economics, Elsevier, vol. 147(C), pages 107-125.
    12. Agnosteva, Delina E. & Anderson, James E. & Yotov, Yoto V., 2019. "Intra-national trade costs: Assaying regional frictions," European Economic Review, Elsevier, vol. 112(C), pages 32-50.
    13. Yoke Fong Kong & Richard Kneller, 2016. "Measuring the Impact of China's Export Growth on its Asian Neighbours," The World Economy, Wiley Blackwell, vol. 39(2), pages 195-220, February.
    14. Cipollina, Maria & Salvatici, Luca, 2007. "EU and developing countries: an analysis of preferential margins on agricultural trade flows," Working Papers 7219, TRADEAG - Agricultural Trade Agreements.
    15. Chen, Natalie & Novy, Dennis, 2008. "International Trade Integration: A Disaggregated Approach," CEPR Discussion Papers 7103, C.E.P.R. Discussion Papers.
    16. Sgrignoli, Paolo & Metulini, Rodolfo & Schiavo, Stefano & Riccaboni, Massimo, 2015. "The relation between global migration and trade networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 417(C), pages 245-260.
    17. Tamini, Lota D. & Chebbi, Houssem Eddine & Abbassi, Abdessalem, 2016. "Trade performance and potential of North African countries: An application of a stochastic frontier gravity model," AGRODEP working papers 33, International Food Policy Research Institute (IFPRI).
    18. Mulabdic, Alen & Rotunno, Lorenzo, 2022. "Trade barriers in government procurement," European Economic Review, Elsevier, vol. 148(C).
    19. Carl Gaigné & Lota D. Tamini, 2021. "Environmental Taxation and Import Demand for Environmental Goods: Theory and Evidence from the European Union," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(2), pages 307-352, February.
    20. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa13p520. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gunther Maier (email available below). General contact details of provider: http://www.ersa.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.