Journal
EUROPEAN REVIEW OF AGRICULTURAL ECONOMICS
Volume 40, Issue 2, Pages 331-360Publisher
OXFORD UNIV PRESS
DOI: 10.1093/erae/jbs028
Keywords
gravity model; selection bias; agrifood trade; Heckman selection model; marginal effects; F10; F12; F19; Q17; R12
Categories
Funding
- Ontario Ministry of Food, Agriculture and Rural Affairs
- Canadian Agricultural Trade Policy and Competitiveness Research Network
- Agriculture and Agri-Food Canada
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In the analysis of bilateral trade flows, reported trade of zero or missing observations is quite common and this is a problem when estimating log-linear gravity equations. This has caused many researchers to either ignore the zero trade flows or replace the zero with a small positive number. Both of these actions bias the resulting parameter estimates of the gravity equation. In this study, we correct for this misspecification by using the Heckman selection model to estimate bilateral trade flows for 46 agrifood products, for the period 19902000, for 52 countries. In our sample, selection bias rarely affects the signs of variables but often has a substantial effect on the magnitude, statistical significance and economic interpretation of the marginal effects. Hence, treating zero trade flows properly is important from both a statistical and an economics perspective.
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