Dynamic gravity: endogenous country size and asset accumulation

Abstract

Numerous gravity applications have resorted to panel data econometric techniques over the past decade. However, with the theory of gravity being so far only static, these estimations lack solid structural dynamic foundations. As a consequence, a consensus on a unified dynamic gravity estimation approach is yet to be reached. In this paper, (i) we build the theoretical foundations for a dynamic gravity model, (ii) we provide guidance for gravity-type estimations with panel data and we consider applications, and (iii) we calibrate and simulate our model to compare its properties with those of the standard, static gravity setup. JEL classification: F10, F11Gravité dynamique : le cas où la taille du pays et l'accumulation d'actifs sont endogènes. De nombreuses applications du modèle de gravité ont eu recoursà des techniqueś econométriques de données de panel au cours de la dernière décennie. Cependant, la théorie de la gravité demeurant statique pour le moment, ces estimations manquent de fondements structurels dynamiques solides. En conséquence, on n'a pas fait consensus sur une approche unifiéeà l'estimation de modèles de gravité dynamique. Dans ce mémoire, (i) on construit les fondements théoriques d'un modèle de gravité dynamique; (ii) on suggère uen façon de procéder pour l'estimation de modèles de gravitéà l'aide de données de panel, et on examine certaines applications; et (iii) on calibre notre modèle et on le soumet a des simulations pour comparer ses propriétés avec celles obtenues au moyen du modèle statique standard.We are grateful to participants in the 2009 EEA meetings for helpful comments and productive feedback. In addition, we thank Werner Antweiler and three anonymous referees whose comments and constructive criticism improved the quality of the paper significantly. We are solely responsible for all errors in the manuscript.

The Gravity Model Approach: An Application on the Eco Was Trading Bloc

“…intra ijt respectively. However, Olivero and Yotov (2012) construct a theoretical basis for a dynamic setting, employing a gravity model with the use of panel data. In line with Baldwin and Taglioni (2006), the time varying effects were used to control the effect of unobservable resistance that are multilateral terms.…”

“…The fixed effect performs very well with time-varying types, which are directional. The dynamic model used in this study was employed by Olivero and Yotov (2012):…”

International terrorism as a trade impediment?

“…By including contemporaneous as well as lagged terror measures in lnh kijt and by measuring t in months, this analysis is capable of avoiding time aggregation bias, accounting for sluggish responses of trade to terror, and respecting general equilibrium (income and thirdcountry) effects altogether. Moreover, using sufficiently many lags of the terror measures, the model may approximate models with dynamic adjustment (see, e.g., Egger, 2001, or Olivero andYotov, 2012, for gravity models with adjustment dynamics).…”

Dark Costs, Missing Data: Shedding Some Light on Services Trade

“…Cheng and Wall (2005) and Baier and Bergstrand (2007) use 5-year intervals, while Eichengreen and Irwin (1996) use 5-and 10-year intervals in gravity estimations. Finally, Olivero and Yotov (2012) experiment with various intervals to check the robustness of their dynamic gravity results. They find that the yearly estimates indeed produce suspicious gravity parameters.…”