Estimating Gravity Equations: Theory Implications, Econometric Developments, and Practical Recommendations

Mario Larch, Serge Shikher and Yoto Yotov

No 2025001, Working Papers from Center for Global Policy Analysis, LeBow College of Business, Drexel University

Abstract: We trace the developments in the empirical trade literature to make fifteen recommendations for estimating gravity equations, which are structured in three categories: data, estimating equation, and heterogeneity. We also offer practical tips and identify areas where further research is needed. Based on these recommendations, we specify a comprehensive estimating model, which can serve as a benchmark for gravity estimations even when it is not possible to implement all of our recommendations. The proposed methods should be useful for gravity estimations beyond international trade, e.g., migration, foreign investment, cross-border patenting, and other flows.

Keywords: Gravity equation; Estimation; Recommendations; Practical tips (search for similar items in EconPapers)
JEL-codes: F10 F14 F63 (search for similar items in EconPapers)
Pages: 58
Date: 2025-01
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