29.09.2025
13:30-14:30
The Estimation of the Universal Gravity Model – A Replication Study of Allen, Arkolakis and Takahashi (2020) and Some Extensions
WIFO Research Seminar
Organised by: Austrian Insitute of Economic Research
Language: English
WIFO, Helene-Lieser-Saal or online via MS-Teams
This contribution replicates a key result of Treb Allen, Costas Arkolakis, and Yuta Takahashi (2020. Universal Gravity. Journal of Political Economy, 128(2), 393-433), who estimate the supply curve based on the estimated fixed effects of a demand-side gravity model of bilateral trade in a cross-section of countries.
The replication delivers almost identical estimation results of their preferred specification. However, Allen, Arkolakis, and Takahashi do not consider that the dependent variable of the supply function is a vector of estimated parameters. The present contribution proposes a two-step estimation approach that takes into account the variation induced by the estimation of the fixed effects in the first step and leads to correct standard errors. Moreover, the exogenously given trade balances are introduced as an additional instrument to improve on the weakness of the instruments.
Please be aware that this seminar will be recorded and published digitally.