Kristian Behrens
Cem Ertur
Wilfried Koch

‘dual’ gravity: using spatial econometrics to control for multilateral resistance (replication data)

We derive a quantity-based structural gravity equation system in which both trade flows and error terms are cross-sectionally correlated. This system can be estimated using techniques borrowed from the spatial econometrics literature. To illustrate our methodology, we apply it to a well-known Canada-US trade dataset. We find that border effects between the USA and Canada are smaller than suggested by previous studies: about 7.5 for Canadian provinces and about 1.3 for US states. Hence controlling directly for cross-sectional interdependence among both trade flows and error terms reduces measured border effects by capturing multilateral resistance.

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Suggested Citation

Behrens, Kristian; Ertur, Cem; Koch, Wilfried (2012): ‘DUAL’ GRAVITY: USING SPATIAL ECONOMETRICS TO CONTROL FOR MULTILATERAL RESISTANCE (replication data). Version: 1. Journal of Applied Econometrics. Dataset.