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The Space of Gravity: Spatially Filtered Estimation of a Gravity Model for Bilateral Trade

In: Spatial Econometric Interaction Modelling

Author

Listed:
  • Roberto Patuelli

    (University of Bologna
    The Rimini Centre for Economic Analysis (RCEA))

  • Gert-Jan M. Linders

    (Ministry of Social Affairs and Employment)

  • Rodolfo Metulini

    (Institute of Economics (LEM), Scuola Superiore Sant’Anna)

  • Daniel A. Griffith

    (The University of Texas at Dallas)

Abstract
Bilateral trade flows traditionally have been analysed by means of the spatial interaction gravity model. Still, (auto)correlation of trade flows has only recently received attention in the literature. This paper takes up this thread of emerging literature, and shows that spatial filtering (SF) techniques can take into account the autocorrelation in trade flows. Furthermore, we show that the use of origin and destination specific spatial filters goes a long way in correcting for omitted variable bias in an otherwise standard empirical gravity equation. For a cross-section of bilateral trade flows, we compare an SF approach to two benchmark specifications that are consistent with theoretically derived gravity. The results are relevant for a number of reasons. First, we correct for autocorrelation in the residuals. Second, we suggest that the empirical gravity equation can still be considered in applied work, despite the theoretical arguments for its misspecification due to omitted multilateral resistance terms. Third, if we include SF variables, we can still resort to any desired estimator, such as OLS, Poisson or negative binomial regression. Finally, interpreting endogeneity bias as autocorrelation in regressor variables and residuals allows for a more general specification of the gravity equation than the relatively restricted theoretical gravity equation. In particular, we can include additional country-specific push and pull variables, besides GDP (e.g., land area, landlockedness, and per capita GDP). A final analysis provides autocorrelation diagnostics according to different candidate indicators.

Suggested Citation

  • Roberto Patuelli & Gert-Jan M. Linders & Rodolfo Metulini & Daniel A. Griffith, 2016. "The Space of Gravity: Spatially Filtered Estimation of a Gravity Model for Bilateral Trade," Advances in Spatial Science, in: Roberto Patuelli & Giuseppe Arbia (ed.), Spatial Econometric Interaction Modelling, chapter 0, pages 145-169, Springer.
    • Handle: RePEc:spr:adspcp:978-3-319-30196-9_8
    DOI: 10.1007/978-3-319-30196-9_8
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    Citations

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    Cited by:

    1. Rodolfo Metulini & Roberto Patuelli & Daniel A. Griffith, 2018. "A Spatial-Filtering Zero-Inflated Approach to the Estimation of the Gravity Model of Trade," Econometrics, MDPI, vol. 6(1), pages 1-15, February.
    2. Karina Acosta & Hengyu Gu, 2022. "Locked up? The development and internal migration nexus in Colombia," Documentos de trabajo sobre Economía Regional y Urbana 304, Banco de la Republica de Colombia.
    3. Güzin Bayar, 2018. "Estimating export equations: a survey of the literature," Empirical Economics, Springer, vol. 54(2), pages 629-672, March.
    4. Rodolfo Metulini & Paolo Sgrignoli & Stefano Schiavo & Massimo Riccaboni, 2018. "The network of migrants and international trade," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(3), pages 763-787, December.
    5. Cristina Di Stefano & P. Lelio Iapadre & Ilaria Salvati, 2021. "Trade and Infrastructure in the Belt and Road Initiative: A Gravity Analysis Based on Revealed Trade Preferences," JRFM, MDPI, vol. 14(2), pages 1-15, January.

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