I’m now writing a paper about trade relations by means of the gravity model of trade.
In my model I decided to include the fixed country-pair effects. However, after having
input those country-pair effects, the coefficient of the GDP of importer is negative,
whilst the theory itself says increase of any partner’s GDP (exporter or importer) shall
have a positive influence on the trade volume.
If i exclude the fixed effects, the coefficients are positive as expected.
Could anyone give me an explanation to that?
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