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Empirical Economics

, Volume 28, Issue 3, pp 571–580 | Cite as

The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects

  • Peter Egger
  • Michael Pfaffermayr

Abstract.

We argue that the proper specification of a panel gravity model should include main (exporter, importer, and time) as well as time invariant exporter-by-importer (bilateral) interaction effects. In a panel of 11 APEC countries, the latter are highly significant and account for the largest part of variation.

Key words: Gravity equation; Panel econometrics 
JEL classification: C33; F14; F15 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2003

Authors and Affiliations

  • Peter Egger
    • 1
  • Michael Pfaffermayr
    • 1
  1. 1.Austrian Institute of Economic Research and University of Innsbruck, Universitätsstrasse 15, A-6020 Innsbruck, Austria (E-mail: Michael.Pfaffermayr@uibk.ac.at)AT

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