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Bayesian inference for the gravity model
Author(s) -
Ranjan Priya,
Tobias Justin L.
Publication year - 2007
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.926
Subject(s) - tobit model , enforcement , economics , gravity model of trade , inference , econometrics , bilateral trade , covariate , bayesian inference , bayesian probability , microeconomics , international trade , computer science , statistics , mathematics , geography , artificial intelligence , china , political science , law , archaeology
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.