Chapter 8: Empirical Specification, Variable Construction and Data Sources
Following the leads of prior studies, a series of augmented gravity specifications are utilized to address the series of hypotheses that relate to the immigrant–trade link. We begin this chapter by presenting the baseline estimation equation. In later chapters, modified estimation equations are presented, as necessary, to address specific hypotheses. This is followed by a discussion of the data, its sources and the construction of variables that are employed in the analysis. We end this chapter by presenting descriptive statistics for both the dependent variable series and the collection of explanatory variables. 8.1 BASELINE SPECIFICATION: THE AUGMENTED GRAVITY MODEL Tinbergen (1962) first applies the gravity specification to trade data, and more recent research has established theoretical foundations for the model. See, for example, Anderson (1979), Bergstrand (1985), Helpman and Krugman (1985), Davis (1995), Haveman and Hummels (1997), Deardorff (1998), Feenstra et al. (2001), Eaton and Kortum (2002) and Anderson and van Wincoop (2003). The most basic version of the gravity model posits | that trade between two countries i and j during year t (Tijt) increases with the countries’ combined economic mass, which is given as the product of their GDP values (GDPitGDPjt) and decreases with the geodesic distance (GDISTij) between the trading partners. Higher home country GDP implies greater potential export markets for the host country to serve and an increased probability that the host country will import from the home country. Similarly, higher host country GDP signals an increased capacity for that country to both export and to...
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