Gravity Models of Trade: Unobserved Heterogeneity and Endogeneity

19 Pages Posted: 20 Mar 2014

See all articles by Felix Chan

Felix Chan

Curtin University - Centre for Research in Applied Economics

Mark N. Harris

Curtin University

William H. Greene

New York University Stern School of Business

László Kónya

La Trobe University

Date Written: March 2014

Abstract

We consider the estimation of the usual Gravity model of trade, which involves flows of trade, say exports, from country i to country j in time period t. We suggest an easy-to-implement generalised method of moments estimator that avoids the issues associated with the usual fixed effects treatment of the unobserved heterogeneity in this type of models and at the same time provides consistent parameter estimates in the face of potentially endogenous covariates.

Keywords: gravity models; unobserved heterogeneity;, Generalised Method of Moments

Suggested Citation

Chan, Felix and Harris, Mark N. and Greene, William H. and Kónya, László, Gravity Models of Trade: Unobserved Heterogeneity and Endogeneity (March 2014). NYU Working Paper No. 2451/33571, Available at SSRN: https://ssrn.com/abstract=2411961

Felix Chan

Curtin University - Centre for Research in Applied Economics ( email )

GPO Box U1987
Perth, Western Australia 6845
Australia

Mark N. Harris

Curtin University

William H. Greene

New York University Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0876 (Phone)

HOME PAGE: http://people.stern.nyu.edu/wgreene

László Kónya

La Trobe University

Department of Economics and Finance
Victoria 3552, 3086
Australia

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