Semi-mixed effects gravity models for bilateral trade

Isabel Proença (), Stefan Sperlich () and Duygu Savaşcı

Empirical Economics, 2015, vol. 48, issue 1, 387 pages

Abstract: In recent years, different alternatives have been suggested to specify and estimate gravity models for bilateral trade. Presently, the so-called Poisson pseudomaximum likelihood (PPML) with log-linear index is probably the most commonly used method. A method is proposed for panel data that targets to reconcile the pros and cons of fixed and random effects models, respectively. It applies equally to two- and three-way panel models and those with country-specific time-varying effects. It allows to filter out potential correlation between observed and unobserved heterogeneity and to identify the effects of time-invariant factors. It can also be used when panels are short in time, and to other specifications than the PPML-like gamma PML, zero-inflated, or Tobit-like models. We introduce and illustrate the proposed estimator with a study of bilateral trade flows across the European Union before the recent economic crisis. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Gravity models; Regional trade; Panel econometrics; F10; F15; C14; C23 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s00181-014-0891-x

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