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Estimating the gravity model without gravity using panel data

[journal article]

Westerlund, Joakim; Wilhelmsson, Fredrik

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Abstract This paper examines the effects of zero trade on the estimation of the gravity model using both simulated and real data with a panel structure, which is different from the more conventional cross-sectional structure. We begin by showing that the usual log-linear estimation method can result in highly deceptive inference when some observations are zero. As an alternative approach, we suggest using the Poisson fixed effects estimator. This approach eliminates the problems of zero trade and is shown to perform well in small samples.
Document language English
Publication Year 2009
Page/Pages p. 641-
Journal Applied Economics, 43 (2009) 6
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)