Estimating gravity equations with endogeneous trade costs

Arbeitspapier

A basic assumption of the gravity equation of international trade is that increasing trade costs lower exports. Butintuition and theory imply that a high export volume lowers bilateral trade costs as well, because a fixed cost intensivetrade sector probably bears lower average costs with more trade. In this case, standard gravity estimation might bebiased due to simultaneity. This paper finds an empirical interdependency between exports and trade costs. Using asimultaneous equation model to face this problem improves the estimates compared to the standard gravity specification.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Dresden Discussion Paper Series in Economics ; No. 01/10

Classification and Topics

• Classification: Wirtschaft ; Trade Policy; International Trade Organizations ; Trade: Forecasting and Simulation ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
• Subject: Gravity Equation ; Trade Policy ; Simultaneity Problem ; Gravitationsmodell ; Außenwirtschaft ; Kosten ; Bias ; Schätzung ; OECD-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Rudolph, Stephan
• Event: Veröffentlichung
• (who): Technische Universität Dresden, Fakultät Wirtschaftswissenschaften
• (where): Dresden
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/39800
• Last update: 10.03.2025, 11:44 AM CET