Controlling for Heterogeneity in Gravity Models of Trade and Integration (ICPSR 1313)
Principal Investigator(s): Cheng, I-Hui, National University of Kaohsuing-Taiwan; Wall, Howard J., Federal Reserve Bank of St. Louis
This paper compares various specifications of the gravity model of trade as nested versions of a general specification that uses bilateral country-pair fixed effects to control for heterogeneity. For each specification, we show that the atheoretical restrictions used to obtain them from the general model are not supported statistically. Because the gravity model has become the "workhorse" baseline model for estimating the effects of international integration, this has important empirical implications. In particular, we show that, unless heterogeneity is accounted for correctly, gravity models can greatly overestimate the effects of integration on the volume of trade.
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Cheng, I-Hui, and Howard J. Wall. Controlling for Heterogeneity in Gravity Models of Trade and Integration. ICPSR01313-v1. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2005-03-15. http://doi.org/10.3886/ICPSR01313.v1
Persistent URL: http://doi.org/10.3886/ICPSR01313.v1
This study was funded by:
- Federal Reserve Bank of St. Louis. Research Division
Scope of Study
Subject Terms: trade
Data Collection Notes:
(1) The files submitted are the data file 0501hwd.xls and the program file 0501hwp.txt. (2) These data are part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigators if further information is desired.
Original ICPSR Release: 2005-03-15
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