GLM estimation of trade gravity models with fixed effects

Peter Egger and Kevin Staub

No 10428, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Many empirical gravity models are now based on generalized linear models (GLM), of which the Poisson pseudo-maximum likelihood estimator is a prominent example and the most-frequently used estimator. Previous literature on the performance of these estimators has primarily focussed on the role of the variance function for the estimators? behavior. We add to this literature by studying the small-sample performance of estimators in a data-generating process that is fully consistent with general equilibrium economic models of international trade. Economic theory suggests that (i) importer- and exporter-specific effects need to be accounted for in estimation, and (ii) that they are correlated with bilateral trade costs through general-equilibrium (or balance-of-payments) restrictions. We compare the performance of structural estimators, fixed effects estimators, and quasi-differences estimators in such settings, using the GLM approach as a unifying framework.

Keywords: Gravity models; Generalized linear models; Fixed effects (search for similar items in EconPapers)
JEL-codes: C23 F14 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-ecm and nep-int
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Citations: View citations in EconPapers (16)

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Journal Article: GLM estimation of trade gravity models with fixed effects (2016)
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