Does the Gravity Model Suffer from Selection Bias?

Zahoor ul Haq, Karl Meilke and John Cranfield

No 90884, Working Papers from Canadian Agricultural Trade Policy Research Network

Abstract: When analyzing bilateral trade flow data, zero trade flows are quite common and problematic when a gravity equation is estimated with a log-linear functional form. This has caused many researchers to either ignore the zero trade flows or to replace zero with a small positive number. Both of these actions bias the resulting parameter estimates of the gravity equation. In this study we correct for this misspecification by using the Heckman selection model to estimate the bilateral trade flows for 46 agrifood products, for the period 1990 to 2000, for 52 countries. In our sample, selection bias rarely affects the signs of variables but often has a substantial effect on the magnitude, statistical significance and economic interpretation of the marginal effects. Hence, treating zero trade flows properly is important from both a statistical and an economics perspective.----------------------------------------------------------------------Revised and published as: Haq, Zahoor Ul, Karl Meilke and John Cranfield. 2013. “Selection bias in a gravity model of agrifood trade.” European Review of Agricultural Economics 40(2):331-360.

Keywords: Agricultural and Food Policy; Demand and Price Analysis; International Relations/Trade (search for similar items in EconPapers)
Pages: 33
Date: 2010-01
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://ageconsearch.umn.edu/record/90884/files/Working_Paper_2010-1_HaqR.pdf (application/pdf)

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:ags:catpwp:90884

DOI: 10.22004/ag.econ.90884

Access Statistics for this paper

More papers in Working Papers from Canadian Agricultural Trade Policy Research Network Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().