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Structural Estimation of Gravity Models with Path-Dependent Market Entry

Author

Listed:
  • Peter Egger
  • Michael Pfaffermayr
Abstract
This paper develops a structural empirical general equilibrium model of aggregate bilateral trade with path dependence of country-pair level exporter status. Such path dependence is motivated through informational costs about serving a foreign market for first-time entry of (firms in) an export market versus continued export services to that market. We embed the theoretical model into a structural dynamic stochastic econometric model of bilateral selection into import markets and apply it to a data-set of aggregate bilateral exports among 120 countries over the period 1995-2004. In particular, we disentangle the role of changes in trade costs, in labor endowments, and in total factor productivity for trade, bilateral market entry, numbers of firms active, and welfare. Dynamic gains from trade differ significantly from static ones, and path-dependence in market entry cushions effects of impulses in fundamental variables that are detrimental to bilateral trade.

Suggested Citation

  • Peter Egger & Michael Pfaffermayr, 2011. "Structural Estimation of Gravity Models with Path-Dependent Market Entry," FIW Research Reports series III-007, FIW.
    • Handle: RePEc:wsr:ecbook:y:2011:m:09:i:iii-007
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    Cited by:

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    2. Jienwatcharamongkhol, Viroj, 2012. "Distance Sensitivity of Export: A Firm-Product Level Approach," Working Papers 2012:33, Lund University, Department of Economics.
    3. Márquez-Ramos, Laura & Martínez-Zarzoso, Inmaculada & Suárez-Burguet, Celestino, 2012. "Trade policy versus trade facilitation: An application using good old OLS," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-38.
    4. Lota D. Tamini & Maurice Doyon & Rodrigue Simon, 2016. "Analyzing Trade Liberalization Effects in the Egg Sector Using a Dynamic Gravity Model," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(2), pages 383-411, June.
    5. Viroj Jienwatcharamongkhol, 2014. "Distance Sensitivity of Export: A Firm-Product Level Approach," Journal of Industry, Competition and Trade, Springer, vol. 14(4), pages 531-554, December.
    6. Buongiorno, Joseph & Rougieux, Paul & Barkaoui, Ahmed & Zhu, Shushuai & Harou, Patrice, 2014. "Potential impact of a Transatlantic Trade and Investment Partnership on the global forest sector," Journal of Forest Economics, Elsevier, vol. 20(3), pages 252-266.
    7. Luigi Capoani, 2023. "Review of the gravity model: origins and critical analysis of its theoretical development," SN Business & Economics, Springer, vol. 3(5), pages 1-43, May.
    8. Evžen Kočenda & Karen Poghosyan, 2018. "Export Sophistication: A Dynamic Panel Data Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(12), pages 2799-2814, September.
    9. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2014. "Panel Data Gravity Models of International Trade," CESifo Working Paper Series 4616, CESifo.
    10. Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "History, gravity and international finance," Journal of International Money and Finance, Elsevier, vol. 46(C), pages 104-129.
    11. Peter Egger & Michael Pfaffermayr, 2016. "A generalized spatial error components model for gravity equations," Empirical Economics, Springer, vol. 50(1), pages 177-195, February.
    12. Jienwatcharamongkhol, Viroj, 2012. "Distance Sensitivity of Export: A Firm-Product Level Approach," Ratio Working Papers 201, The Ratio Institute.
    13. Egger, Peter H. & Tarlea, Filip, 2015. "Multi-way clustering estimation of standard errors in gravity models," Economics Letters, Elsevier, vol. 134(C), pages 144-147.
    14. Evzen Kocenda & Karen Poghosyan, 2017. "Export sophistication: A dynamic panel data approach," Working Papers 980, Central Bank of the Republic of Armenia.
    15. Tamini, Lota Dabio & Doyon, Maurice & Simon, Rodrigue, 2012. "Analyzing Trade Liberalization Effect in the Egg Sector Using a Dynamic Gravity Model," Working Papers 125286, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).

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    More about this item

    Keywords

    Bilateral trade flows; Gravity equation; dynamic random effects model; Sample Selection;
    All these keywords.

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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