Dear Joao,
I am doing a Gravity Model estimating the export potential of China tea to other countries. In my Gravity Model, there is one exporter (China), 85 importers, 17 years (N=1445).

My question:
(1) Is there problem of R2 (0.128), pplm ?
(2) should I use the result of ppml or xereg ……, fe (according to hausman re fe)? fit2 =0 test is rejected.
(3) when I use data of 28 importer countries, 17 years (N=476), R2=0.35, but with N=1445, R2=0.128, should I change regressors?
Thank you.
Fei

Details are as follows:

Equation:
Export=a+a1ln(popj)+a2ln(averagegdpj)+a3ln(teaprod uction)+a4ln(distcap)+a5ln(exchangerate)+a6ln(comr elig)+a7 comlang_ethno+a8 contig+a9 fta_wto

Command:
  • sum exp lgpop lgavgdp lgyield lgdist lgrelig lgrate comlang_ethno contig fta_wto
[IMG]file:///C:/Users/zhang/AppData/Local/Temp/msohtmlclip1/01/clip_image002.jpg[/IMG]
  • ppml exp lgpop lgavgdp lgyield lgdist lgrelig lgrate comlang_ethno contig fta_wto
[IMG]file:///C:/Users/zhang/AppData/Local/Temp/msohtmlclip1/01/clip_image004.jpg[/IMG]
  • predict fit, xb
  • gen fit2=fit^2
  • ppml exp lgpop lgavgdp lgyield lgdist lgrelig lgrate comlang_ethno contig fta_wto fit2
  • test fit2=0
[IMG]file:///C:/Users/zhang/AppData/Local/Temp/msohtmlclip1/01/clip_image006.jpg[/IMG]
[IMG]file:///C:/Users/zhang/AppData/Local/Temp/msohtmlclip1/01/clip_image008.jpg[/IMG]
[IMG]file:///C:/Users/zhang/AppData/Local/Temp/msohtmlclip1/01/clip_image010.jpg[/IMG]
[IMG]file:///C:/Users/zhang/AppData/Local/Temp/msohtmlclip1/01/clip_image012.jpg[/IMG]
[IMG]file:///C:/Users/zhang/AppData/Local/Temp/msohtmlclip1/01/clip_image014.jpg[/IMG]
  • eststo: xtreg lgy lgpop lgavgdp lgyield lgdist lgrelig lgrate comlang_ethno contig fta_wto,fe
  • estimates store FE
  • eststo: xtreg lgpop lgavgdp lgyield lgdist lgrelig lgrate comlang_ethno contig fta_wto ,re
  • estimates store RE
  • xttest0
  • hausman FE RE,constant sigmamore
[IMG]file:///C:/Users/zhang/AppData/Local/Temp/msohtmlclip1/01/clip_image016.jpg[/IMG]