Bayesian inference for the gravity model

Priya Ranjan and Justin Tobias ()
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Priya Ranjan: Department of Economics, University of California-Irvine, USA, Postal: Department of Economics, University of California-Irvine, USA
Authors registered in the RePEc Author Service: Priyaranjan Jha

Journal of Applied Econometrics, 2007, vol. 22, issue 4, 817-838

Abstract: This paper seeks to empirically extend the gravity model, which has been widely used to analyze volumes of trade between pairs of countries. We generalize the basic threshold tobit model by allowing for the inclusion of country-specific effects into the analysis and also show how one can explore the relationship between trade volumes and a given covariate via a non-parametric approach. We use our derived methodology to investigate the impact of a particular aspect of institutions-the enforcement of contracts-on bilateral trade. We find that contract enforcement matters in predicting trade volumes for all types of goods, that it matters most for the trade of differentiated goods, and that the relationship between contract enforcement and trade in our threshold tobit exhibits some nonlinearities. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2007
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Citations: View citations in EconPapers (17)

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DOI: 10.1002/jae.926

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