Silva, J.M.C. Santos and Tenreyro, Silvana 
ORCID: 0000-0002-9816-7452
(2006)
The log of gravity.
Review of Economics and Statistics, 88 (4).
641 - 658.
ISSN 0034-6535
Abstract
Although economists have long been aware of Jensen's inequality, many econometric applications have neglected an important implication of it: under heteroskedasticity, the parameters of log-linearized models estimated by OLS lead to biased estimates of the true elasticities. We explain why this problem arises and propose an appropriate estimator. Our criticism of conventional practices and the proposed solution extend to a broad range of applications where log-linearized equations are estimated. We develop the argument using one particular illustration, the gravity equation for trade. We find significant differences between estimates obtained with the proposed estimator and those obtained with the traditional method.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.mitpressjournals.org/loi/rest |
| Additional Information: | © 2006 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology |
| Divisions: | Centre for Economic Performance Economics |
| Subjects: | H Social Sciences > HB Economic Theory |
| Date Deposited: | 27 Jun 2007 |
| Last Modified: | 03 Dec 2024 06:18 |
| URI: | http://eprints.lse.ac.uk/id/eprint/2510 |
Actions (login required)
 |
View Item |
