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Gravity for Dummies and Dummies for Gravity Equations
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This paper provides a minimalist derivation of the gravity equation and uses it to identify three common errors in the literature, what we call the gold, silver and bronze medal errors.The paper provides estimates of the size of the biases taking the currency union trade effect as an example.We generalize Anderson-Van Wincoop's multilateral trade resistance factor (which only works with cross section data) to allow for panel data and then show that it can be dealt with using time-varying country dummies with omitted determinants of bilateral trade being dealt with by time-invariant pair dummies.
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“To underscore the importance of the MRs Baldwin and Taglioni (2006) dub the omission to control for them 'the gold medal mistake' in gravity estimations.”
From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Baldwin and Taglioni (2006)
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“Baldwin and Taglioni (2006) emphasise that, as a function of time-varying bilateral trade costs, MRs are also time-varying, which implies that the proper set of fixed effects in panel gravity regressions should be of dimension exporter-time and importer-time.”
From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Baldwin and Taglioni (2006)
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Metadata
- Authors
- Baldwin, R., & Taglioni, D.
- Affiliations
- European Central Bank (DE)
- Venue
- National Bureau of Economic Research
- Publisher
- National Bureau of Economic Research
- Published
- 2006-09
- OpenAlex
- W2126230473
- Cited by
- 1,206
- References
- 64
- Citations by year
- 2026: 32 · 2025: 51 · 2024: 51 · 2023: 61 · 2022: 57 · 2021: 77 · 2020: 63 · 2019: 44 · 2018: 46 · 2017: 54 · 2016: 56 · 2015: 78 · 2014: 93 · 2013: 71 · 2012: 73
- Type
- report
- Language
- en
- Open access
- green
- doi.org
- Locations
- National Bureau of Economic Research (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- National Bureau of Economic Research (submittedVersion)
- Graduate Institute Geneva Institutional Repository (Graduate Institute of International and Development Studies) (submittedVersion, cc-by-nc-nd)
- Graduate Institute Geneva Institutional Repository (Graduate Institute of International and Development Studies) (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Global trade and economics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Spatial and Panel Data Analysis
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Growth and Productivity
- Keywords
- gravity model, panel data
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