Taylor approximation of multilateral resistance term with unilateral variable in STATA

conference paper

English

Purpose of the article The article presents the estimation of a gravity model on a bilateral data set of 132 countries. A multilateral resistance term (MRT) is included in the gravity equation. The paper demonstrates a solution using Taylor approximation of MRT with variables that are both bilateral and unilateral. Methodology/methods The estimation of parameters in panel data is described in this paper. A Poisson pseudo-maximum likelihood estimator (PPML) and Taylor approximation of MRT were used to estimate unknown parameters. All calculations were obtained using STATA software. Variable distance, regional trade agreements, common language and contiguity were used as gravity variables. Institutional variables were also included in the gravity model. Scientific aim It has already become a standard routine to include typical gravity variables (distance or dummy variables of trade) into a multilateral resistance term. On the other hand, trade between two countries can also be influenced by institutional variables or by variables describing infrastructure. The aim of the paper is to estimate the gravity equation for panel data containing 132 countries over the period 2006–2015 and to include a unilateral variable into the multilateral resistance term. Findings Although it is not possible to include a unilateral institutional variable directly into a multilateral resistance term and estimate its parameters due to problems with collinearity, this problem can be solved by using institutional distance. This variable is defined as the absolute value of the difference between the two institutional variables for the reporter and partner country. This simple procedure can be programmed, for example, in STATA. Conclusions The common gravity variables affect the volume of trade between two countries as well as the selected institutional variables and GDP of the reporter and partner country.

Purpose of the article The article presents the estimation of a gravity model on a bilateral data set of 132 countries. A multilateral resistance term (MRT) is included in the gravity equation. The paper demonstrates a solution using Taylor approximation of MRT with variables that are both bilateral and unilateral. Methodology/methods The estimation of parameters in panel data is described in this paper. A Poisson pseudo-maximum likelihood estimator (PPML) and Taylor approximation of MRT were used to estimate unknown parameters. All calculations were obtained using STATA software. Variable distance, regional trade agreements, common language and contiguity were used as gravity variables. Institutional variables were also included in the gravity model. Scientific aim It has already become a standard routine to include typical gravity variables (distance or dummy variables of trade) into a multilateral resistance term. On the other hand, trade between two countries can also be influenced by institutional

MICHALÍKOVÁ, E.

30. 4. 2019

Fakulta podnikatelská VUT v Brně

Brno

978-80-214-5756-0

PERSPECTIVES OF BUSINESS AND ENTREPRENEURSHIP DEVELOPMENT IN DIGITAL TRANSFORMATION OF CORPORATE BUSINESS: PROCEEDING OF SELECTED PAPERS

2019

183

188

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