Controlling for Heterogeneity in Gravity Models of Trade and Integration

Cheng, I-Hui; Wall, Howard J.

doi:10.20955/wp.1999.010

Cited by 95 publications

(67 citation statements)

References 27 publications

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“…Following Matyas (1997), Matyas et al. (2004), or more recently Cheng and Wall (2005) and Kandogan (2008), the model is estimated by ordinary least squares including country fixed effects. In that sense, in α i refer to destination fixed effects, are origin fixed effects and μ t are year fixed effects.…”

Section: The Effect Of a Common Currency On Trade And Tourismmentioning

confidence: 99%

Does a Common Currency Promote Countries’ Growth via Trade and Tourism?

et al. 2010

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The main aim of this study is to contribute to the debate on the effects of a common currency. In particular, the impact of a common currency on growth via trade and tourism is explored for a panel dataset which includes 179 countries as destination and 30 OECD countries as origin over the period 1995–2006. This research contributes to previous work in three ways: (i) tourism is included as an additional channel for a common currency to promote growth; (ii) the heterogeneity of countries is addressed by dividing the sample into three groups of countries by income; and (iii) up‐to‐date data including the case of the euro are considered. The results obtained suggest that a common currency strengthens economic growth by promoting not only international trade but also tourism.

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Section: The Effect Of a Common Currency On Trade And Tourismmentioning

confidence: 99%

Does a Common Currency Promote Countries’ Growth via Trade and Tourism?

et al. 2010

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“…For example, if the decisions to form EIAs are ‘slow‐moving’– as they are likely to be – but trade flows are not slow moving (also likely), then panel data offers an opportunity to better identify unbiased effects of EIAs on trade flows. Bayoumi and Eichengreen (1997) pursued this using first‐differences and Cheng and Wall (2005) using fixed effects, but both in the context of atheoretical gravity specifications with small samples.…”

Section: Estimating the Effects Of Various Eias On Trade Flows Usimentioning

confidence: 99%

Free Trade Agreements In the Americas: Are the Trade Effects Larger than Anticipated?

2007

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This paper argues that the 'competitive liberalisation' of national governments of the past several decades reflects national governments' expectations of larger trade impacts from regional economic integration agreements (EIAs) than typical ex ante economic models have suggested. Moreover, we show that previous (typically cross-section) ex post empirical evaluations of the effects of EIAs on trade have seriously over- or underestimated the effects, partly due to ignoring the (endogenous) self-selection bias of country pairs into EIAs. Accounting for this bias, we find that economic integration agreements in the Americas have had much larger impacts on trade over the period 1960-2000 than previously found and the ex post estimates are less fragile than those in earlier cross-section analyses. The results shed further light on understanding the causes and consequences of the growth of regionalism in the world. Copyright 2007 The Authors Journal compilation 2007 Blackwell Publishing Ltd .

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“…(Rose, 2000, 14) Gravity models have provided "some of the clearest and most robust empirical findings in economics." Cheng and Wall (1999) state that the omission of fixed effects may lead to a pattern of over-and under-estimates of trade flows. While the first two are about issues of econometric hygiene (specification) and the third addresses an issue of public policy, all three claim that some omission of variables has important implications for the interpretation of results.…”

Section: Introductionmentioning

confidence: 99%

Monte Carlo Appraisals of Gravity Model Specifications

2008

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Many improvements have been proposed for the basic gravity model specification, most of which are confirmed by standard statistical tests due to the large number of observations often used to estimate such models. We use Monte Carlo experiments to examine situations in which features of models may be found statistically significant (or insignificant) when it is known ex ante that they are absent (or present) in the underlying data process. Erroneous assumptions about the presence or absence of lagged dependent variables, fixed effects, free-trade associations and custom unions are shown to introduce an economically important bias in estimates of the coefficients of interest, and in some cases to be confirmed spuriously. Policy effects for such initiatives as free trade associations and currency unions can also be confirmed spuriously when they do not exist in the data-generating process. 17 Here is another, more positive interpretation: since gravity models routinely have outstanding fits, fixed-effects models among others, perhaps the under-4-percent R-squared finding in column 4 can be taken as evidence that researchers are seldom in the position of estimating an LDV world with an FE model.

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Controlling for Heterogeneity in Gravity Models of Trade and Integration

Cited by 95 publications

References 27 publications

Does a Common Currency Promote Countries’ Growth via Trade and Tourism?

Does a Common Currency Promote Countries’ Growth via Trade and Tourism?

Free Trade Agreements In the Americas: Are the Trade Effects Larger than Anticipated?

Monte Carlo Appraisals of Gravity Model Specifications

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