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Research Article
Bayesian inference for the gravity model
Article first published online: 6 JUN 2007
DOI: 10.1002/jae.926
Copyright © 2007 John Wiley & Sons, Ltd.
1099-1255/asset/cover.gif?v=1&s=b1b203dd8cf20555a0543e60a483d83867056b48 "Journal of Applied Econometrics")
Additional Information
How to Cite
Ranjan, P. and Tobias, J. L. (2007), Bayesian inference for the gravity model. Journal of Applied Econometrics, 22: 817–838. doi: 10.1002/jae.926
Publication History
- Issue published online: 6 JUN 2007
- Article first published online: 6 JUN 2007
- Manuscript Revised: 5 JAN 2006
- Manuscript Received: 4 OCT 2005
Abstract
This paper seeks to empirically extend the gravity model, which has been widely used to analyze volumes of trade between pairs of countries. We generalize the basic threshold tobit model by allowing for the inclusion of country-specific effects into the analysis and also show how one can explore the relationship between trade volumes and a given covariate via a non-parametric approach. We use our derived methodology to investigate the impact of a particular aspect of institutions—the enforcement of contracts—on bilateral trade. We find that contract enforcement matters in predicting trade volumes for all types of goods, that it matters most for the trade of differentiated goods, and that the relationship between contract enforcement and trade in our threshold tobit exhibits some nonlinearities. Copyright © 2007 John Wiley & Sons, Ltd.