The Space of Gravity: Spatial Filtering Estimation of a Gravity Model for Bilateral Trade

Roberto Patuelli (), Gert-Jan Linders (), Rodolfo Metulini and Daniel A. Griffith ()
Additional contact information
Gert-Jan Linders: Ministry of Social Affairs and Employment, The Netherlands
Daniel A. Griffith: School of Economic, Political & Policy Sciences, The University of Texas at Dallas, USA

Working Paper series from Rimini Centre for Economic Analysis

Abstract: Bilateral trade flows traditionally have been analysed by means of the spatial interaction gravity model. Still, (auto)correction 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 t 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.

Date: 2015-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.rcea.org/RePEc/pdf/wp15-27.pdf (application/pdf)

Related works:
Working Paper: The Space of Gravity: Spatial Filtering Estimation of a Gravity Model for Bilateral Trade (2015)
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:rim:rimwps:15-27

Access Statistics for this paper

More papers in Working Paper series from Rimini Centre for Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Marco Savioli ().