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The Gravity Model of International Trade: A User Guide


Author(s): Trade and Investment Division (TID)
Economic Sector(s): (1) Economic statistics
ESCAP Reference No.: ST/ESCAP/2645
Division/Office: Trade and Investment
Published Date: October 2012
Country: {Non-country Specific Publication}
Hard Copy Price: N/A


This user guide provides a “hands-on” introduction to gravity modeling for applied policy researchers. It is designed to be used in conjunction with a dataset of bilateral trade in services available for free download, and readers are encouraged to replicate the results presented here using the Stata code provided in the text. Although some basic knowledge of Stata is required as a pre-requisite, more advanced commands and techniques are introduced in the text as necessary. Once the basic techniques have been mastered, readers are encouraged to extend the results presented here using alternative specifications and methodologies.




Foreword
Executive Summary
iii
vii


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Introduction

The Basis for the Gravity Model: From Intuition to Theory
2.1 The Gravity Intuition
2.2 Problems with the Intuitive Gravity Model
2.3 “Theoretical” Gravity Models
Appendix 2.1: Derivation of the Anderson and Van Wincoop (2003)
Gravity Model

Estimating the Gravity Model
3.1 Estimating the Intuitive Gravity Model
3.2 Estimating the Theoretical Gravity Model
3.3 Dealing with Endogeneity

Alternative Gravity Model Estimators
4.1 The Poisson Pseudo-Maximum Likelihood Estimator
4.2 The Heckman Sample Selection Estimator

Conclusion: Using the Gravity Model for Policy Research

References


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