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Two-way models for gravity

Koen Jochmans

No 2015-09, Sciences Po publications from Sciences Po

Abstract: Empirical models for dyadic interactions between n agents often feature agent-specific parameters. Fixed-effect estimators of such models generally have bias of order n−1,which is non-negligible relative to their standard error. Therefore, confidence sets based on the asymptotic distribution have incorrect coverage. This paper looks at models with multiplicative unobservables and fixed effects. We first derive moment conditions that are free of fixed effects. We next use these moment conditions to set up estimators that are n-consistent, asymptotically normally-distributed, and asymptotically unbiased. We provide Monte Carlo evidence for a range of models and we estimate a gravity equation with multilateral resistance terms as an empirical illustration.

Date: 2015-12
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Related works:
Journal Article: Two-Way Models for Gravity (2017) Downloads
Working Paper: Two-way models for gravity (2015) Downloads
Working Paper: Two-way models for gravity (2015) Downloads
Working Paper: Two-way models for gravity (2015) Downloads
Working Paper: Two-way models for gravity (2015) Downloads
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