The role of socio-cultural factors in static trade panel models
Manfred Fischer and
James P. LeSage ()
Working Papers in Regional Science from WU Vienna University of Economics and Business
The focus is on cross-sectional dependence in panel trade flow models. We propose alternative specifications for modeling time invariant factors such as socio-cultural indicator variables, e.g., common language and currency. These are typically treated as a source of heterogeneity eliminated using fixed effects transformations, but we find evidence of cross-sectional dependence after eliminating country-specific effects. These findings suggest use of alternative simultaneous dependence model specifications that accommodate cross-sectional dependence, which we set forth along with Bayesian estimation methods. Ignoring cross-sectional dependence implies biased estimates from panel trade flow models that rely on fixed effects.
Keywords: Bayesian; MCMC estimation; socio-cultural distance; origin-destination flows; treatment of time invariant variables; panel models (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:wiw:wus046:6361
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