Gravity Model - help

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pawlakdmn
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Gravity Model - help

Postby pawlakdmn » Sat Jan 10, 2015 3:02 am

Hello,

my questions and request for some help concern creation of the model itself.
So I want to create a model that captures create creation and diversion after the 5th enlargement of the EU.

The dependent variable is Trade flow
The independent variables are: GDP of both countries in the pair, Distance, Population of both countries, DEU1 (1 of both are in the EU), DEU2 (1 if exporter is in the EU, importer not), DEU3 (1 if importer is in the EU, exporter not), then some additional dummies: language, border, currency.
Time frame: 1990 - 2013 (and here's the question -> since I am more into the CEECs and previous EU members, and since in 1995 there was the 4th enlargement, shall I redifine the timeframe so that it covers the time of 1996 - 2013?
Country pairs: 8 CEECS - EU 15 - RoW (the biggest partners: US, China, Japan, South Korea, Canada, Hong Kong, Singapure, Mexico, Russia, India, Australia, Switzerland, Brazil, Thailand, Malysia, United Arab Emirates, Saudi Arabia, Turkey, Indonesia, Norway, South Arica, Iran, Vietnam, Nigeria.
Question: Shall I also add another dummy like the bilateral trade agreement or so? It seems like e.g in case of Switzerland, the dummy can capture much of the coefficient?

Then the other model is supposed to estimate the change in trade patterns between the CEECs after the acession to the EU.
Gravity Model:

Dependant variable: trade flow of a CEEC
Independent variables: GDP of both countries, Distance, Population of the countries, border and then...
Since in 1996, the acession treaty got in power, I would measure the model within the time of 1990 - 1996 with one additional dummy: CEEC (if the partner country is also CEEC).
Then 1996 - 2004 to that aboce with the CEEC dummy, I would add one more dummy of Association Agreement
And finally the timeframe of 2004 - 2013 without the Association Agreement but with another dummy EU
The contr pairs: 8 CEECs and EU 15.

Do you think those models are good and are going to indicate the coefficients so that they are going to be basis for the further detailed analyis of the trade flow?

I would appreciate if you could help me out.

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