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The Poisson quasi-maximum likelihood estimator: A solution to the “adding up” problem in gravity models

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  • Arvis, Jean-Francois
  • Shepherd, Ben

Abstract

This paper shows that the Poisson quasi-maximum likelihood estimator applied to the gravity model produces estimates in which, summing across all partners, actual and estimated total trade flows are identical. Other methods such as OLS do not have this desirable property. Indeed, Poisson is the only quasi-maximum likelihood estimator that preserves total trade flows. This result is an additional reason for preferring Poisson as a workhorse gravity model estimator.

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File URL: http://mpra.ub.uni-muenchen.de/34334/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34334.

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Date of creation: 25 Oct 2011
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Handle: RePEc:pra:mprapa:34334

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Keywords: International Trade; Gravity Model; Poisson; Quasi-Maximum Likelihood Estimator;

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  1. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics, Boston College Department of Economics 485, Boston College Department of Economics.
  2. Santos Silva, J.M.C. & Tenreyro, Silvana, 2011. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," Economics Letters, Elsevier, Elsevier, vol. 112(2), pages 220-222, August.
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Cited by:
  1. Zhao, Yong & Tang, Kam Ki & Wang, Li-li, 2013. "Do renewable electricity policies promote renewable electricity generation? Evidence from panel data," Energy Policy, Elsevier, Elsevier, vol. 62(C), pages 887-897.
  2. Arvis, Jean-François & Duval, Yann & Shepherd, Ben & Utoktham,Chorthip, 2013. "Trade costs in the developing world : 1995 - 2010," Policy Research Working Paper Series 6309, The World Bank.

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