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I am conducting an analysis to assess the impact of the CETA trade agreement on trading margins using the gravity equation. One of the challenges I'm facing is how to calculate the distance variable for Europe as a single entity. While I understand how to calculate distance between individual countries, I am uncertain about the appropriate approach for aggregating distance for the entire EU region. Also the language dummy how do i account for that?

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  • $\begingroup$ Why do you need/want to treat Europe as a single entity? Why not keep each country in Europe separate? You could take account of each country's membership of the EU using dummies. $\endgroup$
    – smcc
    Jul 31, 2023 at 12:13
  • $\begingroup$ I apologize for asking another question but my knowledge with stata and regression isnt great. I have data from 2012 until 2021 for export from Canada to the rest of the world and also export from the rest of the world to Canada because i want to use the Hummel and Klenow decomposition of trade. Now how would i define the variable CETA variable given that i have the years from 2012 and also all countries not just the EU. $\endgroup$ Aug 10, 2023 at 11:44

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Since you know how to calculate the distance between individual countries, you can just calculate the center of gravity for Europe as a whole if you have the distances for each individual country. This will require you to calculate the x and y values on a cartesian plane set upon the EU. The benefit of this approach is that you can take the size of each country's economy into account by giving each point a weighting.

An easier but still common approach is to simply consider the geometric center of a region as the 'center of mass'. This can skew your data considerably since geographic center and economic center are not the same thing. A small region in Germany named Gadheim claims to be the geographical center of the EU following Brexit.

Though as I'm sure you're aware, counting the EU as a single 'mass' will hinder the usefulness of your analysis with either approach.

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