Gravity models of intra-EU trade. Using the Serlenga and Shin (2007) panel data set, which can be downloaded from the Journal of Applied Econometrics website, replicate Tables II and III of that paper and the associated test statistics. In particular, you are asked to apply the Hausman-Taylor estimation methodology to the gravity equation of bilateral trade flows among 15 European countries over the period 1960-2001. The general model regresses bilateral trade (Trade) on GDP, similarity in relative size (Sim), differences in relative factor endowments between trading partners (Rlf), real exchange rate (Rer), a dummy variable which is 1 when both countries belong to the European community (Cee), a dummy variable which is 1 when both countries adopt a common currency (Emu); distance between capital cities (Dist); common border (Bor); and common language (Lan).

(a) replicate the FE results in Table II for the full model;

(b) replicate the HT estimation results in Table II;

(c) perform the Hausman test for overidentification when GDP, RLF, and RER are used as instruments for Lan in the HT estimation;

(d) What happens if you perform the Amemiya and MaCurdy (1986) estimator?