The Duration of Trade Revisited. Continuous-Time vs. Discrete-Time Hazards
The recent literature on the duration of trade has predominantly analyzed the determinants of trade flow durations using Cox proportional hazards models. The purpose of this paper is to show why it is inappropriate to analyze the duration of trade with continuous-time models such as the Cox model, and to propose alternative discrete-time models which are more suitable for estimation. Briefly, the Cox model has three major drawbacks when applied to large trade data sets. First, it faces problems in the presence of many tied duration times, leading to biased coefficient estimates and standard errors. Second, it is difficult to properly control for unobserved heterogeneity, which can result in spurious duration dependence and parameter bias. Third, the Cox model imposes the restrictive and empirically questionable assumption of proportional hazards. By contrast, with discrete-time models there is no problem handling ties; unobserved heterogeneity can be controlled for without difficulty; and the restrictive proportional hazards assumption can easily be bypassed. By replicating an influential study by Besedeš and Prusa from 2006, but employing discrete-time models as well as the original Cox model, we find empirical support for each of these arguments against the Cox model. Moreover, when comparing estimation results obtained from a Cox model and our preferred discrete-time specification, we find significant differences in both the predicted hazard rates and the estimated effects of explanatory variables on the hazard. In other words, the choice between models affects the conclusions that can be drawn.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||19 Feb 2010|
|Date of revision:|
|Publication status:||Forthcoming as Hess, Wolfgang and Maria Persson, 'The Duration of Trade Revisited. Continuous-Time vs. Discrete-Time Hazards' in Empirical Economics.|
|Contact details of provider:|| Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden|
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
References listed on IDEAS
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.:
- Volker Nitsch, 2009.
"Die another day: duration in German import trade,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(1), pages 133-154, April.
- Volker Nitsch, 2007. "Die Another Day: Duration in German Import Trade," DEGIT Conference Papers c012_037, DEGIT, Dynamics, Economic Growth, and International Trade.
- Nitsch, Volker, 2008. "Die another day: duration in German import trade," Discussion Papers 2008/17, Free University Berlin, School of Business & Economics.
- Volker Nitsch, 2007. "Die Another Day: Duration in German Import Trade," CESifo Working Paper Series 2085, CESifo Group Munich.
- Besedes, Tibor & Prusa, Thomas J., 2006. "Product differentiation and duration of US import trade," Journal of International Economics, Elsevier, vol. 70(2), pages 339-358, December.
- Besedes, Tibor & Prusa, Thomas J., 2011.
"The role of extensive and intensive margins and export growth,"
Journal of Development Economics,
Elsevier, vol. 96(2), pages 371-379, November.
- Tibor Besedes & Thomas J. Prusa, 2007. "The Role of Extensive and Intensive Margins and Export Growth," NBER Working Papers 13628, National Bureau of Economic Research, Inc.
- Jaap H. Abbring & Gerard J. van den Berg, 2006.
"The Unobserved Heterogeneity Distribution in Duration Analysis,"
Tinbergen Institute Discussion Papers
06-059/3, Tinbergen Institute.
- Jaap H. Abbring & Gerard J. Van Den Berg, 2007. "The unobserved heterogeneity distribution in duration analysis," Biometrika, Biometrika Trust, vol. 94(1), pages 87-99.
- Abbring, Jaap H & van den Berg, Gerard J, 2007. "The Unobserved Heterogeneity Distribution in Duration Analysis," CEPR Discussion Papers 6219, C.E.P.R. Discussion Papers.
- Brenton, Paul & Saborowski, Christian & von Uexkull, Erik, 2009.
"What explains the low survival rate of developing country export flows ?,"
Policy Research Working Paper Series
4951, The World Bank.
- Paul Brenton & Christian Saborowski & Erik von Uexkull, 2010. "What Explains the Low Survival Rate of Developing Country Export Flows?," World Bank Economic Review, World Bank Group, vol. 24(3), pages 474-499, December.
- McCall, Brian P, 1994. "Testing the Proportional Hazards Assumption in the Presence of Unmeasured Heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(3), pages 321-34, July-Sept.
- Thomas A. Mroz & Yaraslau V. Zayats, 2008. "Arbitrarily Normalized Coefficients, Information Sets, and False Reports of "Biases" in Binary Outcome Models," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 406-413, August.
- Sueyoshi, Glenn T, 1995. "A Class of Binary Response Models for Grouped Duration Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 411-31, Oct.-Dec..
- Bruce D. Meyer, 1988.
"Unemployment Insurance And Unemployment Spells,"
NBER Working Papers
2546, National Bureau of Economic Research, Inc.
- Jenkins, Stephen P, 1995. "Easy Estimation Methods for Discrete-Time Duration Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 129-38, February.
- Van den Berg, Gerard J., 2001.
"Duration models: specification, identification and multiple durations,"
Handbook of Econometrics,
in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 55, pages 3381-3460
- Van den Berg, Gerard J., 2000. "Duration Models: Specification, Identification, and Multiple Durations," MPRA Paper 9446, University Library of Munich, Germany.
- Michael Baker & Angelo Melino, 1999.
"Duration Dependence and Nonparametric Heterogeneity: A Monte Carlo Study,"
melino-99-01, University of Toronto, Department of Economics.
- Baker, Michael & Melino, Angelo, 2000. "Duration dependence and nonparametric heterogeneity: A Monte Carlo study," Journal of Econometrics, Elsevier, vol. 96(2), pages 357-393, June.
- Richard Newfarmer & William Shaw & Peter Walkenhorst, 2009. "Breaking Into New Markets," World Bank Publications, The World Bank, number 2616, June.
- Stephen W. Salant, 1977.
"Search Theory and Duration Data: A Theory of Sorts,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 91(1), pages 39-57.
- Stephen W. Salant, 1974. "Search theory and duration data: a theory of sorts," Special Studies Papers 42, Board of Governors of the Federal Reserve System (U.S.).
- Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
- Dolton, Peter J & van der Klaauw, Wilbert, 1995. "Leaving Teaching in the UK: A Duration Analysis," Economic Journal, Royal Economic Society, vol. 105(429), pages 431-44, March.
- Ana Cristina Molina & Marco Fugazza, 2009. "The determinants of trade survival," IHEID Working Papers 05-2009, Economics Section, The Graduate Institute of International Studies, revised Jun 2009.
- Tibor Besedes & Thomas Prusa, 2006. "Ins, outs, and the duration of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 266-295, February.
- Tibor Besedeš, 2008. "A Search Cost Perspective on Formation and Duration of Trade," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 835-849, November.
- Concetta Rondinelli & Cheti Nicoletti, 2009.
"The (mis)specification of discrete duration models with unobserved heterogeneity: a Monte Carlo study,"
Temi di discussione (Economic working papers)
705, Bank of Italy, Economic Research and International Relations Area.
- Nicoletti, Cheti & Rondinelli, Concetta, 2010. "The (mis)specification of discrete duration models with unobserved heterogeneity: A Monte Carlo study," Journal of Econometrics, Elsevier, vol. 159(1), pages 1-13, November.
- Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 63-132.
- Amemiya, Takeshi, 1981. "Qualitative Response Models: A Survey," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1483-1536, December.
- Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
- Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-64, May.
- Hess, Wolfgang, 2009. "A Flexible Hazard Rate Model for Grouped Duration Data," Working Papers 2009:18, Lund University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:hhs:lunewp:2010_001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Edgerton)
If references are entirely missing, you can add them using this form.