st: gravity model with country and products fixed effects

[Marco Sanfilippo <marco.sanfilippo@unifi.it>]

Dear all,

I am trying to estimate a gravity model for my phd thesis where my 
dependent variable is the import (M) of country j from country i of 
product hs6 (6-digit harmonized system) at time t:

lMijths6= 
lGDPit+lGDPpcit+lGDPjt+lGDPpcjt+ldistij+landlockedi+comlangij+eijhs6t

I have around 70 importers and 48 exporters, with exports ranging up to 
5,000 products. Time period is 1995-2005.
Beyond the difficulties of handling with such big dataset, the first 
issue I'm dealing with regards the identifier for my panel. I believe 
there is wide eterogeneity both at the product level and at the country 
level but, as far as I know, I have to choose only one id. In case I 
identify my panel with either the country-couple (i j) or the products 
(hs6) I incur in "repeated time values within panel" error. I wonder 
whether it is appropriate to combine country and product effects (egen 
panel=group(i j hs6)).
The second question regards the most appropriate method to be adopted. I 
think that fixed effects would be proper given the presence of so many 
sources of unobservables. However, among my covariates, I have some time 
invarying standard-gravity-variables (distance-common language, land 
lockeness). Should I employ a pooled estimation or is it better a 
two-stages least squares (e.g. Hausman-Taylor) or, still, dynamic panel 
estimators?

Any suggestion is more than welcome, pls let me know if you need more 
details.
Best regards,

Marco

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