gravity (version 0.8.5)

ek_tobit: Eaton2001;textualgravity Tobit model (EK Tobit)

Description

ek_tobit estimates gravity models in their additive form by conducting a censored regression.

It follows the Eaton2001;textualgravity Tobit model where each country is assigned specific censoring bounds.

Usage

ek_tobit(dependent_variable, regressors, code_destination, robust = TRUE,
  data, ...)

Arguments

dependent_variable

name (type: character) of the dependent variable in the dataset data (e.g. trade flows).

This variable is logged and then used as the dependent variable in the estimation.

As the log of zero is not defined, all flows equal to zero are replaced by a left open interval with the logged minimum trade flow of the respective importing country as right border.

regressors

name (type: character) of the regressors to include in the model.

Include the distance variable in the dataset data containing a measure of distance between all pairs of bilateral partners and bilateral variables that should be taken as the independent variables in the estimation.

Unilateral metric variables such as GDPs should be inserted via the argument incomes.

Interaction terms can be added.

Write this argument as c(distance, contiguity, common curreny, ...).

code_destination

variable name (type: character) of the label of the country of destination (e.g. ISO-3 code from the iso_d variable in the example datasets). The variables are grouped by using iso_d to obtain estimates.

robust

robust (type: logical) determines whether a robust variance-covariance matrix should be used. By default is set to TRUE.

If robust = TRUE the estimation results are consistent with the Stata code provided at Gravity Equations: Workhorse, Toolkit, and Cookbook when choosing robust estimation.

data

name of the dataset to be used (type: character).

To estimate gravity equations you need a square dataset including bilateral flows defined by the argument dependent_variable, ISO codes or similar of type character (e.g. iso_o for the country of origin and iso_d for the destination country), a distance measure defined by the argument distance and other potential influences (e.g. contiguity and common currency) given as a vector in regressors are required.

All dummy variables should be of type numeric (0/1).

Make sure the ISO codes are of type "character".

If an independent variable is defined as a ratio, it should be logged.

The user should perform some data cleaning beforehand to remove observations that contain entries that can distort estimates.

The function allows zero flows but will remove zero distances.

...

additional arguments to be passed to ek_tobit.

Value

The function returns the summary of the estimated gravity model as a survreg-object.

Details

ek_tobit represents the Eaton2001;textualgravity Tobit model.

When taking the log of the gravity equation flows equal to zero constitute a problem as their log is not defined. Therefore, in ek_tobit all values of the dependent variable are redefined as intervals.

The positive observations have both interval bounds equal to their original value.

For zero flows the interval is left open. The right border of the interval is set to the log of the minimum positive trade flow of the respective importing country.

The defined data object of class Surv is then inserted in survreg for the parameter estimation.

ek_tobit is designed to be consistent with the Stata code provided at Gravity Equations: Workhorse, Toolkit, and Cookbook when choosing robust estimation.

For other Tobit functions, see tobit for a simple Tobit model where number 1 is added to all observations and et_tobit for the Eaton and Tamura (1994) threshold Tobit model where instead of simply adding number 1 to the data the threshold is estimated.

The function is designed for cross-sectional data, but can be extended to panel data using the survreg function.

References

For more information on gravity models, theoretical foundations and estimation methods in general see

Anderson1979gravity

Anderson2001gravity

Anderson2010gravity

Baier2009gravity

Baier2010gravity

Head2010gravity

Santos2006gravity

and the citations therein.

Especially for Tobit models see

Tobin1958gravity

Eaton1995gravity

Eaton2001gravity

Carson2007gravity

See Gravity Equations: Workhorse, Toolkit, and Cookbook for gravity datasets and Stata code for estimating gravity models.

See Also

Surv, survreg

Examples

# NOT RUN {
# Example for data with zero trade flows
data(gravity_zeros)

gravity_zeros <- gravity_zeros %>%
    mutate(
        lgdp_o = log(gdp_o),
        lgdp_d = log(gdp_d)
    )

ek_tobit(dependent_variable = "flow", regressors = c("distw", "rta","lgdp_o","lgdp_d"),
code_destination = "iso_d",
robust = TRUE, data = gravity_zeros)
# }
# NOT RUN {
# }
# NOT RUN {
# }