The Formulation and Estimation of Random Effects Panel Data Models of Trade

The paper introduces for the most frequently used three- dimensional panel data sets several random effects model specifications. It derives appropriate estimation methods for the balanced and unbalanced cases and deals with some extensions as well. An application is also presented where the bilateral trade of 20 EU countries is analysed for the period 2001-2006. The differences between the fixed and random effects specifications are highlighted through this empirical exercise.