Decomposition of Bilateral Trade Flows Using a Three-Dimensional Panel Data Model

Yufeng Mao (), Bin Peng (), Mervyn Silvapulle (), Param Silvapulle () and Yanrong Yang ()

No 7/21, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: This study decomposes the bilateral trade flows using a three-dimensional panel data model. Under the scenario that all three dimensions diverge to infinity, we propose an estimation approach to identify the number of global shocks and countryspecific shocks sequentially, and establish the asymptotic theories accordingly. From the practical point of view, being able to separate the pervasive and nonpervasive shocks in a multi-dimensional panel data is crucial for a range of applications, such as, international financial linkages, migration flows, etc. In the numerical studies, we first conduct intensive simulations to examine the theoretical findings, and then use the proposed approach to investigate the international trade flows from two major trading groups (APEC and EU) over 1982-2019, and quantify the network of bilateral trade.

Keywords: three-dimensional panel data; bilateral trade; asymptotic theory (search for similar items in EconPapers)
JEL-codes: C23 P45 (search for similar items in EconPapers)
Pages: 66
Date: 2021
New Economics Papers: this item is included in nep-ecm, nep-int and nep-isf
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