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st: gravity model with country and products fixed effects


From   Marco Sanfilippo <marco.sanfilippo@unifi.it>
To   statalist@hsphsun2.harvard.edu
Subject   st: gravity model with country and products fixed effects
Date   Thu, 25 Sep 2008 17:20:34 +0200

Dear all,

I am trying to estimate a gravity model for my phd thesis where my dependent variable is the import (M) of country j from country i of product hs6 (6-digit harmonized system) at time t:

lMijths6= lGDPit+lGDPpcit+lGDPjt+lGDPpcjt+ldistij+landlockedi+comlangij+eijhs6t

I have around 70 importers and 48 exporters, with exports ranging up to 5,000 products. Time period is 1995-2005.
Beyond the difficulties of handling with such big dataset, the first issue I'm dealing with regards the identifier for my panel. I believe there is wide eterogeneity both at the product level and at the country level but, as far as I know, I have to choose only one id. In case I identify my panel with either the country-couple (i j) or the products (hs6) I incur in "repeated time values within panel" error. I wonder whether it is appropriate to combine country and product effects (egen panel=group(i j hs6)).
The second question regards the most appropriate method to be adopted. I think that fixed effects would be proper given the presence of so many sources of unobservables. However, among my covariates, I have some time invarying standard-gravity-variables (distance-common language, land lockeness). Should I employ a pooled estimation or is it better a two-stages least squares (e.g. Hausman-Taylor) or, still, dynamic panel estimators?

Any suggestion is more than welcome, pls let me know if you need more details.
Best regards,

Marco

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