Structural Estimation and the Border Puzzle

32 Pages Posted: 14 Sep 2004

See all articles by Edward J. Balistreri

Edward J. Balistreri

Iowa State University

Russell H. Hillberry

University of Melbourne - Department of Economics; World Bank - Development Research Group (DECRG)

Date Written: July 2004

Abstract

Theory-consistent gravity equations are the focus of recent efforts to understand large international border effects. This study extends the current literature by examining asymmetric border frictions in the context of non-linear multi-lateral resistance regressors. Asymmetries are important because their inclusion undermines accepted empirical explanations of large border effects for relatively small countries. The estimation strategy and simulation analysis employed here generalize existing techniques to allow for asymmetries. The motivating trade equilibrium is estimated in its extensive form. Direct estimation of the general equilibrium is preferable to current techniques because it avoids biased structural inferences and properly accounts for relative income changes in the simulated borderless equilibrium. Both are critical to measuring the border effect.

Keywords: Border effect, structural estimation

JEL Classification: F15, C39

Suggested Citation

Balistreri, Edward J. and Hillberry, Russell H., Structural Estimation and the Border Puzzle (July 2004). Available at SSRN: https://ssrn.com/abstract=589063 or http://dx.doi.org/10.2139/ssrn.589063

Edward J. Balistreri

Iowa State University ( email )

260 Heady Hall
Ames, IA 50011
United States
3032531674 (Phone)

Russell H. Hillberry (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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