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Estimating General Equilibrium Trade Policy Effects: GE PPML

Author

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  • Anderson, James

    () (Department of Economics Boston College)

  • Larch, Mario

    () (University of Bayreuth)

  • Yotov, Yoto

    () (School of Economics Drexel University)

Abstract

We develop a simple estimation procedure for general equilibrium (GE) comparative static analysis of gravity models. Non-linear solvers of estimated models are replaced by (constrained) regressions. Applied economists can more readily generate results, with more intuition about the working of the model. We illustrate with a worldwide border removal application using the Poisson Pseudo-Maximum-Likelihood (PPML) estimator in STATA, iterated to deliver conditional and full general equilibrium responses. The method works by fully exploiting the combined properties of structural gravity and PPML. Our procedures readily extend to a wide class of general equilibrium production models.

Suggested Citation

  • Anderson, James & Larch, Mario & Yotov, Yoto, 2016. "Estimating General Equilibrium Trade Policy Effects: GE PPML," School of Economics Working Paper Series 2016-6, LeBow College of Business, Drexel University.
  • Handle: RePEc:ris:drxlwp:2016_006
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    References listed on IDEAS

    as
    1. Anderson, James & Larch, Mario & Yotov, Yoto, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," School of Economics Working Paper Series 2015-2, LeBow College of Business, Drexel University.
    2. Fernández-Val, Iván & Weidner, Martin, 2016. "Individual and time effects in nonlinear panel models with large N, T," Journal of Econometrics, Elsevier, vol. 192(1), pages 291-312.
    3. Anderson, James E. & Yotov, Yoto V., 2016. "Terms of trade and global efficiency effects of free trade agreements, 1990–2002," Journal of International Economics, Elsevier, vol. 99(C), pages 279-298.
    4. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    5. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, Elsevier.
    6. Santos Silva, J.M.C. & Tenreyro, Silvana, 2011. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," Economics Letters, Elsevier, vol. 112(2), pages 220-222, August.
    7. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    8. James E. Anderson & Yoto V. Yotov, 2010. "The Changing Incidence of Geography," American Economic Review, American Economic Association, vol. 100(5), pages 2157-2186, December.
    9. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, Elsevier.
    10. Robert Dekle & Jonathan Eaton & Samuel Kortum, 2008. "Global Rebalancing with Gravity: Measuring the Burden of Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 55(3), pages 511-540, July.
    11. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    12. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    Citations

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    Cited by:

    1. Gabriel Felbermayr & Jasmin Gröschl & Thomas Steinwachs, 2018. "The Trade Effects of Border Controls: Evidence from the European Schengen Agreement," Journal of Common Market Studies, Wiley Blackwell, vol. 56(2), pages 335-351, March.
    2. Angela Cheptea & Carl Gaigné, 2018. "Russian food embargo and the lost trade," Working Papers SMART - LERECO 18-05, INRA UMR SMART-LERECO.
    3. repec:elg:eechap:17028_2 is not listed on IDEAS
    4. Matthieu Crozet & Julian Hinz, 2016. "Collateral Damage: The impact of the Russia sanctions on sanctioning countries’ exports," Working Papers 2016-16, CEPII research center.
    5. repec:dat:bmngmt:y:2016:i:4:p:3 is not listed on IDEAS
    6. Mario Larch & Yoto V. Yotov, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," CESifo Working Paper Series 6020, CESifo Group Munich.
    7. Heid, Benedikt & Larch, Mario & Yotov, Yoto, 2017. "Estimating the Effects of Non-discriminatory Trade Policies within Structural Gravity Models," School of Economics Working Paper Series 2017-10, LeBow College of Business, Drexel University.
    8. Maria Cipollina & Luca De Benedictis & Luca Salvatici & Claudio Vicarelli, 2016. "Policy Measurement And Multilateral Resistance In Gravity Models," Working Papers LuissLab 16130, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    9. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters,in: Handbook of International Trade and Transportation, chapter 2, pages 15-78 Edward Elgar Publishing.
    10. Scott L. Baier & Yoto V. Yotov & Thomas Zylkin, 2016. "On the Widely Differing Effects of Free Trade Agreements: Lessons from Twenty Years of Trade Integration," CESifo Working Paper Series 6174, CESifo Group Munich.
    11. Borchert, Ingo & Yotov, Yoto V., 2017. "Distance, globalization, and international trade," Economics Letters, Elsevier, vol. 153(C), pages 32-38.
    12. Hinz, Julian, 2017. "The ties that bind: Geopolitical motivations for economic integration," Kiel Working Papers 2085, Kiel Institute for the World Economy (IfW).
    13. Iliev, Dragomir & Stefanov, Galin & Yotov, Yoto, 2016. "Estimating Bulgaria’S Trade Borders With The Eu An Application Of The Empirical Gravity Model Of Trade," Business Management, D. A. Tsenov Academy of Economics, Svishtov, Bulgaria, issue 4, pages 1-3.
    14. Oliver Reiter & Robert Stehrer, 2018. "Trade Policies and Integration of the Western Balkans," wiiw Working Papers 148, The Vienna Institute for International Economic Studies, wiiw.
    15. Piermartini, Roberta & Yotov, Yoto V., 2016. "Estimating trade policy effects with structural gravity," WTO Staff Working Papers ERSD-2016-10, World Trade Organization (WTO), Economic Research and Statistics Division.
    16. Hinz, Julian, 2017. "The cost of sanctions: Estimating lost trade with gravity," Kiel Working Papers 2093, Kiel Institute for the World Economy (IfW).
    17. Larch, Mario & Anderson, James E. & Yotov, Yoto V., 2017. "Trade Liberalization, Growth, and FDI: A Structural Estimation Framework," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168071, Verein für Socialpolitik / German Economic Association.
    18. Crozet, Matthieu & Hinz, Julian, 2016. "Friendly fire - the trade impact of the Russia sanctions and counter-sanctions," Kiel Working Papers 2059, Kiel Institute for the World Economy (IfW).
    19. Rutger Teulings, 2017. "Brexit and The Impact of Gradual Economic Integration on Export," Tinbergen Institute Discussion Papers 17-075/VI, Tinbergen Institute.
    20. Franc Klaassen & Rutger Teulings, 2017. "Untangling Real Gravity," Tinbergen Institute Discussion Papers 17-121/VI, Tinbergen Institute.
    21. repec:fgv:epgrbe:v:71:y:2017:i:4:a:65699 is not listed on IDEAS
    22. Steven Brakman & Harry Garretsen & Tristan Kohl, 2017. "Consequences of Brexit and Options for a "Global Britain"," CESifo Working Paper Series 6448, CESifo Group Munich.

    More about this item

    Keywords

    Structural Gravity; General Equilibrium Effects; Counterfactuals; Estimation;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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