Comparing alternative methods to estimate gravity models of bilateral trade
By Estrella Gomez-Herrera. Empirical Economics, 2010
311 citations recorded by the source corpus.
The gravity equation has been traditionally used to predict trade flows across countries. However, several problems related with its empirical application still remain unsolved. The unobserved heterogeneity, the presence of heteroskedasticity in trade data or the existence of zero flows, which make the estimation of the logarithm unfeasible, are some of them. This paper provides a survey of the most recent literature concerning the specification and estimation methods of this equation. For a dataset covering 80% of world trade, the most widely extended estimators are compared, showing that the Heckman sample selection model performs better overall for the specification of gravity equation selected.
Subfields: Economics and Econometrics, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/8f8c293c0c88d2cd151daaedcb4ae560e2b16db1
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