1
$\begingroup$

In my last subject of studies I am analyzing trade costs in a gravity model, e.g. multilateral trade resistance and bilateral trade resistance terms. The gravity model assumes world trade. However, I want to analyse the effect of these trade resistance terms only on a subset of countries, , e.g. trade costs of war on LDC's. I therefore would drop all developed countries as exporters and would only analyse LDC's as exporters. Developed countries would be included as importers though. Would it be statistically misleading or would that regression work ?

$\endgroup$
  • $\begingroup$ Welcome! What do you mean by "The gravity model assumes world trade"? $\endgroup$ – emeryville May 26 '18 at 22:02
1
$\begingroup$

This regression may work. Two issues, however.

  1. How do you identify the "trade costs of war" given that trade and war are potentially endogenous?
  2. Dropping the developed countries, which are the main exporters, may affect the estimates of the bilateral and multilateral trade resistance terms. But this is easy to check by comparing the estimates with and without the main exporters.
$\endgroup$
  • $\begingroup$ 1. I use Country pair fixed effects with year specific effects. For the second part of my studies I use the estimates of the trade distortion caused by a conflict in order to determine a increase in the log likelihood of conflicts. A 2SLS approach would be more adequate though. 2. The estimates should be the same. (I did not though about it, as a robustness check. thank you!) $\endgroup$ – Nikolai Kl May 27 '18 at 10:27

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.