The Poisson quasi-maximum likelihood estimator: A solution to the “adding up” problem in gravity models
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.
|Date of creation:||25 Oct 2011|
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- Joao Santos Silva & Silvana Tenreyro, 2009.
"Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator,"
LSE Research Online Documents on Economics
25506, London School of Economics and Political Science, LSE Library.
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- James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
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