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Gravity models, PPML estimation and the bias of the robust standard errors

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  • Michael Pfaffermayr

Abstract

In gravity models with exporter and importer dummies, the robust standard errors of the slope parameters tend to be severely downward biased when estimated by PPML. The coverage rate of confidence intervals of the estimated slope parameters may thus be much too small in cross-sections of the size typically used in empirical research.

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  • Michael Pfaffermayr, 2019. "Gravity models, PPML estimation and the bias of the robust standard errors," Applied Economics Letters, Taylor & Francis Journals, vol. 26(18), pages 1467-1471, October.
    • Handle: RePEc:taf:apeclt:v:26:y:2019:i:18:p:1467-1471
    DOI: 10.1080/13504851.2019.1581902
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    Cited by:

    1. Bradley, Sebastien & Carril-Caccia, Federico & Yotov, Yoto, 2023. "Reassessing the Effects of Corporate Income Taxes on Mergers and Acquisitions Using Empirical Advances in the Gravity Literature," School of Economics Working Paper Series 2023-8, LeBow College of Business, Drexel University.
    2. Weidner, Martin & Zylkin, Thomas, 2021. "Bias and consistency in three-way gravity models," Journal of International Economics, Elsevier, vol. 132(C).
    3. Sonali Chowdhry & Julian Hinz & Katrin Kamin, 2022. "Brothers in arms: The value of coalitions in sanctions regimes," RSCAS Working Papers 2022/62, European University Institute.
    4. Frensch, Richard & Fidrmuc, Jarko & Rindler, Michael, 2023. "Topography, borders, and trade across Europe," Journal of Comparative Economics, Elsevier, vol. 51(3), pages 816-832.
    5. Mariam Camarero & Laura Montolio & Cecilio Tamarit, 2022. "Explaining German outward FDI in the EU: a reassessment using Bayesian model averaging and GLM estimators," Empirical Economics, Springer, vol. 62(2), pages 487-511, February.
    6. 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.
    7. Pfaffermayr, Michael, 2021. "Confidence intervals for the trade cost parameters of cross-section gravity models," Economics Letters, Elsevier, vol. 201(C).
    8. Jesse LaBelle & Inmaculada Martinez-Zarzoso & Ana Maria Santacreu & Yoto V. Yotov, 2023. "Cross-Border Patenting, Globalization, and Development," CESifo Working Paper Series 10850, CESifo.
    9. Mariam Camarero & Laura Montolio & Cecilio Tamarit, 2019. "Alternative Estimators For The Fdi Gravity Model: An Application To German Outward Fdi," Working Papers 1907, Department of Applied Economics II, Universidad de Valencia.
    10. Koen Jochmans & Vincenzo Verardi, 2022. "Instrumental‐variable estimation of exponential‐regression models with two‐way fixed effects with an application to gravity equations," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(6), pages 1121-1137, September.
    11. 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.
    12. Fabiola Cruz Navarro-Soto & Elsa-Sofia Morote & Roberto Macha-Huamán & Enzo Arnold Saavedra-Soplín, 2023. "Determinants of Peruvian Export Efficiency: Poisson PML Estimation Approach," Economies, MDPI, vol. 11(6), pages 1-20, June.
    13. Larch, Mario & Yotov, Yoto, 2023. "Estimating the Effects of Trade Agreements: Lessons From 60 Years of Methods and Data," School of Economics Working Paper Series 2023-4, LeBow College of Business, Drexel University.
    14. 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.
    15. Pfaffermayr, Michael, 2020. "Constrained Poisson pseudo maximum likelihood estimation of structural gravity models," International Economics, Elsevier, vol. 161(C), pages 188-198.
    16. Brandi, Clara & Schwab, Jakob & Berger, Axel & Morin, Jean-Frédéric, 2020. "Do environmental provisions in trade agreements make exports from developing countries greener?," World Development, Elsevier, vol. 129(C).

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