Cross-sectional dependence model specifications in a static trade panel data setting

LeSage, James and Fischer, Manfred M. ORCID: https://orcid.org/0000-0002-0033-2510 (2019) Cross-sectional dependence model specifications in a static trade panel data setting. Working Papers in Regional Science, 2019/03. WU Vienna University of Economics and Business, Vienna.

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Abstract

The focus is on cross-sectional dependence in panel trade flow models. We propose alternative specifications for modeling time invariant factors such as socio-cultural indicator variables, e.g., common language and currency. These are typically treated as a source of heterogeneity eliminated using fixed effects transformations, but we find evidence of cross-sectional dependence after eliminating country-specific and time-specific effects. These findings suggest use of alternative simultaneous dependence model specifications that accommodate cross-sectional dependence, which we set forth along with Bayesian estimation methods. Ignoring cross-sectional dependence implies biased estimates from panel trade flow models that rely on fixed effects.

Item Type: Paper
Keywords: Bayesian, MCMC estimation, socio-cultural distance, origin-destination flows, treatment of time invariant variables, panel models
Classification Codes: JEL C18, C51, R11
Divisions: Departments > Sozioökonomie > Wirtschaftsgeographie und Geoinformatik
Depositing User: Gertraud Novotny
Date Deposited: 25 Mar 2019 13:50
Last Modified: 11 Feb 2020 07:02
FIDES Link: https://bach.wu.ac.at/d/research/results/90797/
URI: https://epub.wu.ac.at/id/eprint/6886

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