Asymmetries In The Log-linear Gravity Model

Date Added: Aug 2010
Format: PDF

This paper draws attention on the importance of asymmetries in HMR-like log-linearized gravity models with homoskedastic errors. The authors propose a version of the HMR model in which the number of firms per country is finite. This adaptation makes the model consistent with the fact that the number of firms potentially involved in trade in several exporting industries is not large. Using concrete examples and simulations, they show that the log of the error term is negatively skewed in most applications.