Gravity Model Estimation: Fixed Effects vs. Random Intercept Poisson Pseudo Maximum Likelihood

Sören Prehn, Bernhard Brümmer and Thomas Glauben

No 169094, IAMO Discussion Papers from Institute of Agricultural Development in Transition Economies (IAMO)

Abstract: Since the work of Feenstra (2002), the standard Anderson & van Wincoop (2003) Gravity Model has been estimated using a fixed effects approach. However, a fixed effects approach has a major drawback: it does not allow for the estimation of exporter- and importer-invariant variables. Thus, economically relevant variables such as exporter and importer gross domestic product are disregarded. Here, we propose a random intercept model to address this gap. This approach not only provides identical estimates to a fixed effects approach, but also allows for the estimation of exporter- and importer-invariant variables.

Keywords: International Relations/Trade; Research Methods/ Statistical Methods (search for similar items in EconPapers)
Pages: 8
Date: 2014
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Gravity model estimation: fixed effects vs. random intercept Poisson pseudo-maximum likelihood (2016)
Working Paper: Gravity model estimation: Fixed effects vs. random intercept poisson pseudo maximum likelihood (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iamodp:169094

DOI: 10.22004/ag.econ.169094

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