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Exponential regression models with two-way fixed effects: twexp and twgravity

Koen Jochmans and Vincenzo Verardi

London Stata Conference 2019 from Stata Users Group

Abstract: I present the commands twexp and twgravity, which implement the estimators developed in Jochmans (2017) for exponential regression models with two-way fixed effects. twexp is applicable to generic nxm panel data. twgravity is written for the special case where the data are a cross-section on dyadic interactions between n agents. A prime example of the latter is cross-sectional bilateral trade data, where the model of interest is a gravity equation with importer and exporter effects. Both twexp and twgravity can deal with data where n and m are large, that is, the case of many fixed effects. Idea: The pseudo-Poisson approach suffers from two drawbacks. The first is a numerical one. Indeed, the large amount of fixed effects implies that a simple approach that combines, say, poisson with n+m dummy variables will be infeasible in many datasets. The routines poi2hdfe (Guimaraes 2016) or ppmlhdfe (Correia et al. 2019) are designed especially to deal with this problem and are useful alternatives here. The second drawback is that the plug-in estimator of the covariance matrix of the above moment conditions is severly biased. The origin of the problem is the estimation of the incidental parameters.

Date: 2019-09-15
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