Publication detail

On Estimation of Gravity Equation: a Cluster Analysis

Author(s): Mgr. Božena Bobková ,
Type: IES Working Papers
Year: 2014
Number: 37
Published in: IES Working Papers 37/2014
Publishing place: Prague
Keywords: gravity model, K-mean clustering, Germany, slope heterogeneity
JEL codes: C23, C45, F10, F14
Suggested Citation: Bobková B. (2014). “On Estimation of Gravity Equation: a Cluster Analysis” IES Working Paper 37/2014. IES FSV. Charles University.
Grants: GAČR č. P402/12/0982: Trade Flows in Times of Economic Boom and Slump: Modifying the Gravity Model for Country, Time and Product-Specific Decision-Making
Abstract: This article questions the slope homogeneity in a gravity equation and proposes a partially heterogeneous framework for its estimation using panel data. We suggest to employ K-mean clustering to group countries according to the gravity equation variables. Further, the gravity model is estimated on these created homogeneous groups. We apply this procedure on analysis of German trade data and confirm the slope heterogeneity in the model. When we estimate the model on each cluster separately, the estimated coefficients and their standard errors vary sufficiently. Moreover, we show that the pooled estimation technique severely under- or overestimate the effect of given variables.
Downloadable: wp_2014_37_Bobkova




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