Alternative Techniques for Estimation of Cross-Section Gravity Models

This paper compares four different estimators with respect to their suitability for cross-section gravity model estimation. In many circumstances, a Hausman-Taylor approach can be recommended. This framework may provide consistent parameter estimates, when OLS or the traditional random-effects model are biased. In contrast to the fixed-effects approach, it allows to estimate parameters of variables such as GDP or GDP per capita, which vary only in a single dimension. The Hausman-Taylor model deserves attention in the estimation of cross-sectional gravity models. Copyright 2005 International Monetary Fund.