Structural Gravity and Fixed Effects

Thibault Fally

No 21212, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The gravity equation for trade flows is one of the most successful empirical models in economics and has long played a central role in the trade literature (Anderson, 2011). Different approaches to estimate the gravity equation, i.e. reduced-form or more structural, have been proposed. This paper examines the role of adding-up constraints as the key difference between structural gravity with "multilateral resistance" indexes and reduced-form gravity with simple fixed effects by exporter and importer. In particular, estimating gravity equations using the Poisson Pseudo-Maximum-Likelihood Estimator (Poisson PML) with fixed effects automatically satisfies these constraints and is consistent with the introduction of "multilateral resistance" indexes as in Anderson and van Wincoop (2003).

JEL-codes: C13 C50 F10 F15 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-ecm and nep-int
Note: ITI
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Citations: View citations in EconPapers (368)

Published as Fally, Thibault, 2015. "Structural gravity and fixed effects," Journal of International Economics, Elsevier, vol. 97(1), pages 76-85.

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