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Constrained Poisson pseudo maximum likelihood estimation of structural gravity models

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  • Michael Pfaffermayr
Abstract
This paper reconsiders the estimation of structural gravity models. It introduces a constrained, projection-based Poisson pseudo maximum likelihood estimation procedure (constrained PPML) that exploits the equilibrium conditions introduced by Anderson and Van Wincoop (2003) for estimation and inference. The constrained PPML estimator avoids the estimation of the large number of exporter and importer fixed effects, and provides more reliable inference than the unconstrained PPML estimator. Moreover, based on the delta method the paper drives confidence intervals of counterfactual changes. Monte Carlo simulations yield encouraging results on the performance of the constrained PPML estimator.

Suggested Citation

  • Michael Pfaffermayr, 2020. "Constrained Poisson pseudo maximum likelihood estimation of structural gravity models," International Economics, CEPII research center, issue 161, pages 188-198.
    • Handle: RePEc:cii:cepiie:2020-q1-161-14
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    Cited by:

    1. Harald Oberhofer & Michael Pfaffermayr, 2021. "Estimating the trade and welfare effects of Brexit: A panel data structural gravity model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 338-375, February.
    2. Harald Oberhofer & Michael Pfaffermayr & Richard Sellner, 2021. "Revisiting time as a trade barrier: Evidence from a panel structural gravity model," Review of International Economics, Wiley Blackwell, vol. 29(5), pages 1382-1417, November.
    3. Pfaffermayr, Michael, 2021. "Confidence intervals for the trade cost parameters of cross-section gravity models," Economics Letters, Elsevier, vol. 201(C).
    4. Julia Spornberger, 2022. "EU integration and structural gravity: A comprehensive quantification of the border effect on trade," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 915-938, September.
    5. repec:wsr:ecbook:2021:i:vii-006 is not listed on IDEAS
    6. Michael Pfaffermayr, 2020. "Trade creation and trade diversion of economic integration agreements revisited: a constrained panel pseudo-maximum likelihood approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(4), pages 985-1024, November.

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    More about this item

    Keywords

    Constrained Poisson pseudo maximum likelihood estimation; International trade gravity equation structural estimation;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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