The MIT PressJournals
Article navigation
Publication Cover

Follow

More About The Review


Article Metrics

Altmetric

About article usage data:

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Aenean euismod bibendum laoreet. Proin gravida dolor sit amet lacus accumsan et viverra justo commodo. Proin sodales pulvinar tempor. Cum sociis natoque penatibus et magnis dis parturient montes, nascetur ridiculus mus.


Follow

Follow

The Log of Gravity

J. M. C. Santos Silva and Silvana Tenreyro

Posted Online November 07, 2006
https://doi.org/10.1162/rest.88.4.641

Review of Economics and Statistics

Volume 88 | Issue 4 | November 2006
p.641-658
Download Options

The Log of Gravity

J. M. C. Santos Silva and Silvana Tenreyro
https://doi.org/10.1162/rest.88.4.641
Received: March 29, 2004
Accepted: September 13, 2005
Published Online: November 07, 2006
Abstract

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.

J. M. C. Santos Silva
ISEG/Universidade Técnica de Lisboa and CEMAPRE
Silvana Tenreyro
London School of Economics, CEP, and CEPR
https://doi.org/10.1162/rest.88.4.641
Abstract

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.

J. M. C. Santos Silva
ISEG/Universidade Técnica de Lisboa and CEMAPRE
Silvana Tenreyro
London School of Economics, CEP, and CEPR
Download Options

The Log of Gravity

J. M. C. Santos Silva and Silvana Tenreyro
https://doi.org/10.1162/rest.88.4.641
Received: March 29, 2004
Accepted: September 13, 2005
Published Online: November 07, 2006
Abstract

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.

J. M. C. Santos Silva
ISEG/Universidade Técnica de Lisboa and CEMAPRE
Silvana Tenreyro
London School of Economics, CEP, and CEPR
Favorite
Track Citations
Download Citation
RSS TOC
RSS Citation