Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/159919 
Year of Publication: 
2016
Series/Report no.: 
Quaderni - Working Paper DSE No. 1081
Publisher: 
Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE), Bologna
Abstract: 
Nonlinear estimation of the gravity model with Poisson/negative binomial methods has become popular to model international trade flows, because it permits a better accounting for zero flows and extreme values in the distribution tail. Nevertheless, as trade flows are not independent from each other due to spatial autocorrelation, these methods may lead to biased parameter estimates. To overcome this problem, eigenvector spatial filtering variants of the Poisson/negative binomial specification have been proposed in the literature of gravity modelling of trade. However, no specific treatment has been developed for cases in which many zero flows are present. This paper contributes to the literature in two ways. First, by employing a stepwise selection criterion for spatial filters that is based on robust (sandwich) p-values and does not require likelihood-based indicators. In this respect, we develop an ad hoc backward stepwise function in R. Second, using this function, we select a reduced set of spatial filters that properly accounts for importer-side and exporter-side specific spatial effects, both at the count and the logit processes of zero-inflated methods. Applying this estimation strategy to a cross-section of bilateral trade flows between a set of worldwide countries for the year 2000, we find that our specification outperforms the benchmark models in terms of model fitting, both considering the AIC and in predicting zero (and small) flows.
JEL: 
C14
C21
F10
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

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