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The Gravity Model and the Problem of Zero's in Agrifood Trade

Author

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  • Haq, Zahoor Ul
  • Meilke, Karl D.
  • Cranfield, John A.L.
Abstract
In the analysis of bilateral trade flows, reported trade of zero or missing observations are quite common and this is a problem when estimating log-linear gravity equations. This has caused many researchers to either ignore the zero trade flows or to replace the zero with a small positive number. Both of these actions bias the resulting parameter estimates of the gravity equation. In this study we correct for this misspecification by using the Heckman selection model to estimate bilateral trade flows for 46 agrifood products, for the period 1990 to 2000, for 52 countries. In our sample, selection bias rarely affects the signs of variables but often has a substantial effect on the magnitude, statistical significance and economic interpretation of the marginal effects. Hence, treating zero trade flows properly is important from both a statistical and an economics perspective.---------------------------------------------------------------------------------- Revised and published as: Haq, Zahoor Ul, Karl Meilke and John Cranfield. 2013. “Selection bias in a gravity model of agrifood trade.” European Review of Agricultural Economics 40(2):331-360.

Suggested Citation

  • Haq, Zahoor Ul & Meilke, Karl D. & Cranfield, John A.L., 2011. "The Gravity Model and the Problem of Zero's in Agrifood Trade," Working Papers 116851, Canadian Agricultural Trade Policy Research Network.
    • Handle: RePEc:ags:catpwp:116851
    DOI: 10.22004/ag.econ.116851
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    3. Bamidele Adekunle & Ciliaka M. W. Gitau, 2013. "Illusion or Reality: Understanding the Trade Flow Between China and Sub-Saharan Africa," Journal of African Business, Taylor & Francis Journals, vol. 14(2), pages 117-126, August.

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    Keywords

    Agricultural and Food Policy; Demand and Price Analysis; International Relations/Trade; Research Methods/ Statistical Methods;
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