In this document we give several examples of hands-on estimation to familiarize yourself with the gravity equation methodological choices highlighted in the literature review. This guide provides an illustrative dataset with alternative Stata codes presenting the different possible estimation strategies.
Part 1 describes how estimations are carried out with panel data and are directed to show the relevance of the multilateral resistance term as well as the modeling of the (trade) policy variables. In Part 2, cross-sections estimations show the importance of working with disaggregated data. Finally, Part 3 shows how you can solve the ‘zero (trade flows) problem’ using either Heckman or Poisson estimators.
As you read this guide, you will use STATA to carry out estimations designed to familiarize you with the software and, more importantly, the gravity model. STATA is a statistical software program and we assume that you have a recent version of STATA (version 11.2 or later). The instructions in this guide are quite detailed. Our aim is to give sufficient detail to enable a new user of this software to follow the examples relying solely on this guide. On the other hand, the guide is strictly related to the literature review that highlights the main theoretical and methodological issues illustrated in the regressions.