2024/01/18 by LeSage, James P., Fischer, Manfred M.
paper · doi:10.57938/dde399c5-99d5-47ef-90a4-cb3065009604
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- <br/>destination dyad and time-period speciffic effects, we find evidence of cross-sectional dependence in flows. <br/>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. <br/>Application of the model to a panel of trade flows points to network spillover effects, suggesting <br/>the presence of network dependence and biased estimates from conventional trade flow specifications.