Abstract:

This paper analyses Czech exports by applying the gravity model to a panel dataset consisting of 177 trade partners during 1995-2011. The model is based on a micro-founded specification derived for panel data estimations. We utilize the fixed effects (FE) and least squares dummy variable (LSDV) estimations. The FE and LSDV methods allow us to deal with multilateral resistance terms derived from a micro-economic specification of gravity models. We demonstrate a theoretical bias in estimated coefficient, if the estimation does not take into account the resistance terms.