Estimation Issues in Single Commodity Gravity Trade Models
AbstractRecently gravity trade models are applied to disaggregated trade data. Here many zeros are characteristic. In the presence of excess zeros usual Poisson Pseudo Maximum Likelihood (PPML) is still consistent, the variance covariance matrix however is invalid. Correct economic interpretation however requires also the last. So alternative estimators are looked for. Staub & Winkelmann  argue that zeroinflated count data models (i.e. zero-inflated Poisson / Negative Binomial Pseudo Maximum Likelihood (ZIPPML / ZINBPML)) are no alternative since under model misspecification these estimators are inconsistent. Yet zero-inflated Poisson Quasi- Likelihood (PQL) is a reliable alternative. It is consistent even under model misspecifications and beyond that robust against unobserved heterogeneity. Another alternative is a log-skew-normal Two-Part Model (G2PM) which generalizes the standard log-normal Two-Part Model (2PM). It is insofar advantageous as it adjusts for (negative) skewness and regression coefficients retain usual interpretations as in log-normal models. PQL is useful for multiplicative gravity model estimation and G2PM for log-linear gravity model estimation. Exemplarily the estimators are applied to intra-European piglet trade to assess their empirical performance and applicability for single commodity trade flow analysis. The empirical part favours PQL but G2PM is a reliable alternative for other trade flow analyses. PQL and G2PM should become standard tools for single commodity trade flow analysis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114776.
Date of creation: 2011
Date of revision:
Gravity Model; Homogeneous Firm Trade Model; Excess Zeros; Overdispersion; Negatively Skewed Distribution; Poisson Quasi Likelihood; Two Part Model; International Relations/Trade;
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- J. M. C. Santos Silva & Silvana Tenreyro & Frank Windmeijer, 2010. "Is it different for zeros? Discriminating between models for non-negative data with many zeros," CeMMAP working papers CWP20/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Egger, Peter & Larch, Mario, 2011. "An assessment of the Europe agreements' effects on bilateral trade, GDP, and welfare," European Economic Review, Elsevier, vol. 55(2), pages 263-279, February.
- Gabriel Felbermayr & Wilhelm Kohler, 2010.
"Modelling the Extensive Margin of World Trade: New Evidence on GATT and WTO Membership,"
The World Economy,
Wiley Blackwell, vol. 33(11), pages 1430-1469, November.
- Felbermayr, Gabriel & Kohler, Wilhelm K., . "Modelling the Extensive Margin of World Trade: New Evidence on GATT and WTO Membership," Chapters in Economics, University of Munich, Department of Economics.
- Felbermayr, Gabriel & Kohler, Wilhelm K., 2010. "Modelling the extensive margin of world trade: New evidence on GATT and WTO membership," Munich Reprints in Economics 20605, University of Munich, Department of Economics.
- Martijn Burger & Frank van Oort & Gert-Jan Linders, 2009.
"On the Specification of the Gravity Model of Trade: Zeros, Excess Zeros and Zero-inflated Estimation,"
Spatial Economic Analysis,
Taylor & Francis Journals, vol. 4(2), pages 167-190.
- Burger, M.J. & van Oort, F.G. & Linders, G.J.M., 2009. "On the Specification of the Gravity Model of Trade: Zeros, Excess Zeros and Zero-Inflated Estimation," ERIM Report Series Research in Management ERS-2009-003-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- Russell H. Hillberry, 2002. "Aggregation bias, compositional change, and the border effect," Canadian Journal of Economics, Canadian Economics Association, vol. 35(3), pages 517-530, August.
- Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008.
"Estimating Trade Flows: Trading Partners and Trading Volumes,"
3228230, Harvard University Department of Economics.
- Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 441-487, 05.
- Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If references are entirely missing, you can add them using this form.