Niveau: Supérieur, Doctorat, Bac+8
Latent Multilateral Trade Resistance Indices: Theory and Evidence? Wilfried Koch† James P. LeSage‡ October 9, 2009 Abstract Anderson and van Wincoop (2003) make a convincing argument that traditional gravity equation estimates are biased by the omission of multilateral resistance terms. They show that these multilateral resistance terms are implicitly defined by a system of non-linear equations involving all regions' GDP shares and a global interdependence structure involving trade costs. We show how linearizing the system of non-linear relationships around a free trade world leads to an interdependence structure that can be used as a Bayesian prior to produce statistical estimates of the inward and outward multilateral resistance indices. This reflects a statistical approach that has advantages over the non-stochastic numerical approach used by Anderson and van Wincoop (2003) to solve for these indices and other approaches proposed in the literature. KEYWORDS: gravity equations; multilateral resistance indices; Bayesian hier- archical models JEL: C11; F12; R12 ?The authors wish to thank R. K. Pace and Olivier Parent for valuable comments. The usual disclaimer applies. †LEG, Universite de Bourgogne, France. E-mail: , corresponding au- thor. ‡McCoy College of Business, Texas State University-San Marcos, USA 1
- gravity equation
- squares estimates
- regions using only
- xij ?
- resistance between
- multilateral resistance
- bilateral trade
- involving all regions'
- trade flows