A generalized design for bilateral trade flow models

Badi H. Baltagi, Peter Egger, Michael Pfaffermayr

Research output: Contribution to journalArticlepeer-review

194 Scopus citations


This paper suggests a full interaction effects design to analyze bilateral trade flows. This is illustrated with an unbalanced panel of bilateral trade between the triad (EU15, USA and Japan) economies and their 57 most important trading partners over the period 1986-1997. Our full interaction model finds empirical support for the New Trade Theory and Linder's hypothesis. We show that the omission of one or more interaction effects can result in biased estimates and misleading inference.

Original languageEnglish (US)
Pages (from-to)391-397
Number of pages7
JournalEconomics Letters
Issue number3
StatePublished - Sep 1 2003
Externally publishedYes


  • Bilateral trade flows
  • Gravity model
  • Interaction effects
  • Panel econometrics

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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