The Space of Gravity: Spatially Filtered Estimation of a Gravity Model for Bilateral Trade

Roberto Patuelli (), Gert-Jan M. Linders, Rodolfo Metulini and Daniel A. Griffith
Additional contact information
Gert-Jan M. Linders: Ministry of Social Affairs and Employment
Daniel A. Griffith: The University of Texas at Dallas

Chapter Chapter 8 in Spatial Econometric Interaction Modelling, 2016, pp 145-169 from Springer

Abstract: Abstract Bilateral trade flows traditionally have been analysed by means of the spatial interaction gravity model. Still, (auto)correlation of trade flows has only recently received attention in the literature. This paper takes up this thread of emerging literature, and shows that spatial filtering (SF) techniques can take into account the autocorrelation in trade flows. Furthermore, we show that the use of origin and destination specific spatial filters goes a long way in correcting for omitted variable bias in an otherwise standard empirical gravity equation. For a cross-section of bilateral trade flows, we compare an SF approach to two benchmark specifications that are consistent with theoretically derived gravity. The results are relevant for a number of reasons. First, we correct for autocorrelation in the residuals. Second, we suggest that the empirical gravity equation can still be considered in applied work, despite the theoretical arguments for its misspecification due to omitted multilateral resistance terms. Third, if we include SF variables, we can still resort to any desired estimator, such as OLS, Poisson or negative binomial regression. Finally, interpreting endogeneity bias as autocorrelation in regressor variables and residuals allows for a more general specification of the gravity equation than the relatively restricted theoretical gravity equation. In particular, we can include additional country-specific push and pull variables, besides GDP (e.g., land area, landlockedness, and per capita GDP). A final analysis provides autocorrelation diagnostics according to different candidate indicators.

Keywords: Bilateral trade; Spatial filtering; Unconstrained gravity model; C14; C21; F10 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (8)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:spr:adspcp:978-3-319-30196-9_8

Ordering information: This item can be ordered from
http://www.springer.com/9783319301969

DOI: 10.1007/978-3-319-30196-9_8

Access Statistics for this chapter

More chapters in Advances in Spatial Science from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().