DDM
estimates gravity models via Double Demeaning the
left hand side and right hand side of the gravity equation.
DDM(y, dist, x, vce_robust = TRUE, data, ...)
name (type: character) of the dependent variable in the dataset
data
, e.g. trade flows. This variable is logged and then used as the
dependent variable in the estimation.
name (type: character) of the distance variable in the dataset
data
containing a measure of distance between all pairs of bilateral
partners. It is logged automatically when the function is executed.
vector of names (type: character) of those bilateral variables in
the dataset data
that should be taken as the independent variables
in the estimation. If an independent variable is a dummy variable,
it should be of type numeric (0/1) in the dataset. If an independent variable
is defined as a ratio, it should be logged.
Unilateral effects drop out due to double demeaning and therefore
cannot be estimated.
robust (type: logic) determines whether a robust
variance-covariance matrix should be used. The default is set to TRUE
.
If set TRUE
the estimation results equal the Stata results for
robust estimation.
name of the dataset to be used (type: character).
To estimate gravity equations, a square gravity dataset including bilateral
flows defined by the argument y
, ISO-codes of type character
(called iso_o
for the country of origin and iso_d
for the
destination country), a distance measure defined by the argument dist
and other potential influences given as a vector in x
are required.
All dummy variables should be of type numeric (0/1). Missing trade flows as
well as incomplete rows should be excluded from the dataset.
Furthermore, flows equal to zero should be excluded as the gravity equation
is estimated in its additive form.
As, to our knowledge at the moment, there is no explicit literature covering
the estimation of a gravity equation by DDM
using panel data, cross-sectional data should be used.
additional arguments to be passed to DDM
.
The function returns the summary of the estimated gravity model as an
lm
-object.
DDM
is an estimation method for gravity models presented
in Head and Mayer (2014) (see the references for more information).
To execute the function a square gravity dataset with all pairs of
countries, ISO-codes for the country of origin and destination, a measure of
distance between the bilateral partners as well as all
information that should be considered as dependent an independent
variables is needed.
Make sure the ISO-codes are of type "character".
Missing bilateral flows as well as incomplete rows should be
excluded from the dataset.
Furthermore, flows equal to zero should be excluded as the gravity equation
is estimated in its additive form.
Country specific effects are subdued due double demeaning.
Hence, unilateral income proxies such as GDP cannot be
considered as exogenous variables.
DDM
is designed to be consistent with the Stata code provided at
the website
Gravity Equations: Workhorse, Toolkit, and Cookbook
when choosing robust estimation.
As, to our knowledge at the moment, there is no explicit literature covering
the estimation of a gravity equation by DDM
using panel data,
we do not recommend to apply this method in this case.
For more information on Double Demeaning as well as information on gravity models, theoretical foundations and estimation methods in general see
Head, K. and Mayer, T. (2014) <DOI:10.1016/B978-0-444-54314-1.00003-3>
as well as
Anderson, J. E. (1979) <DOI:10.12691/wjssh-2-2-5>
Anderson, J. E. (2010) <DOI:10.3386/w16576>
Anderson, J. E. and van Wincoop, E. (2003) <DOI:10.3386/w8079>
Baier, S. L. and Bergstrand, J. H. (2009) <DOI:10.1016/j.jinteco.2008.10.004>
Baier, S. L. and Bergstrand, J. H. (2010) in Van Bergeijk, P. A., & Brakman, S. (Eds.) (2010) chapter 4 <DOI:10.1111/j.1467-9396.2011.01000.x>
Head, K., Mayer, T., & Ries, J. (2010) <DOI:10.1016/j.jinteco.2010.01.002>
Santos-Silva, J. M. C. and Tenreyro, S. (2006) <DOI:10.1162/rest.88.4.641>
and the citations therein.
See Gravity Equations: Workhorse, Toolkit, and Cookbook for gravity datasets and Stata code for estimating gravity models.
# NOT RUN {
data(Gravity)
DDM(y="flow", dist="distw", x=c("rta"), vce_robust=TRUE, data=Gravity)
DDM(y="flow", dist="distw", x=c("rta", "comcur", "contig"),
vce_robust=FALSE, data=Gravity)
# }
# NOT RUN {
# }
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