MCMC estimation of panel gravity models in the presence of network dependence

James P. LeSage, Manfred M. Fischer

Publication: Working/Discussion PaperWU Working Paper

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Abstract

Past focus in the panel gravity literature has been on multidimensional fixed effects specifications in an effort to accommodate heterogeneity. After introducing fixed effects for each origin-
destination dyad and time-period speciffic effects, we find evidence of cross-sectional dependence in flows.
We propose a simultaneous dependence gravity model that allows for network dependence in flows, along with computationally efficient MCMC estimation methods that produce a Monte Carlo integration estimate of log-marginal likelihood useful for model comparison.
Application of the model to a panel of trade flows points to network spillover effects, suggesting
the presence of network dependence and biased estimates from conventional trade flow specifications.
Original languageEnglish
Place of PublicationVienna
PublisherWU Vienna University of Economics and Business
Publication statusPublished - 2 Oct 2018

Publication series

NameWorking Papers in Regional Science
No.2018/07

WU Working Paper Series

  • Working Papers in Regional Science

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