Controlling for heterogeneity in gravity models of trade and integration

I-Hui Cheng () and Howard Wall

Review, 2005, vol. 87, issue Jan, 49-63

Abstract: This paper compares various specifications of the gravity model of trade as nested versions of a general specification that uses bilateral country-pair fixed effects to control for heterogeneity. For each specification, we show that the atheoretical restrictions used to obtain them from the general model are not supported statistically. Because the gravity model has become the \\"workhorse\\" baseline model for estimating the effects of international integration, this has important empirical implications. In particular, we show that, unless heterogeneity is accounted for correctly, gravity models can greatly overestimate the effects of integration on the volume of trade.

Keywords: International; trade (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (217)

Downloads: (external link)
https://files.stlouisfed.org/files/htdocs/publications/review/05/01/Cheng.pdf (application/pdf)

Related works:
Working Paper: Controlling for heterogeneity in gravity models of trade and integration (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlrv:y:2005:i:jan:p:49-63:n:v.87no.1

Access Statistics for this article

Review is currently edited by Juan M. Sanchez

More articles in Review from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().