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Gravity model estimation: Fixed effects vs. random intercept poisson pseudo maximum likelihood
[Gravity Modell Schätzung: Fixed Effects vs.Random Intercept Poisson Pseudo Maximum Likelihood]

Author

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  • Prehn, Sören
  • Brümmer, Bernhard
  • Glauben, Thomas

Abstract

Since the work of FEENSTRA (2002), the standard ANDERSON & VAN WINCOOP (2003) Gravity Model has been estimated using a fixed effects approach. However, a fixed effects approach has a major drawback: it does not allow for the estimation of exporter- and importer-invariant variables. Thus, economically relevant variables such as exporter and importer gross domestic product are disregarded. Here, we propose a random intercept model to address this gap. This approach not only provides identical estimates to a fixed effects approach, but also allows for the estimation of exporter- and importer-invariant variables.

Suggested Citation

  • Prehn, Sören & Brümmer, Bernhard & Glauben, Thomas, 2014. "Gravity model estimation: Fixed effects vs. random intercept poisson pseudo maximum likelihood [Gravity Modell Schätzung: Fixed Effects vs.Random Intercept Poisson Pseudo Maximum Likelihood]," IAMO Discussion Papers 148, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
  • Handle: RePEc:zbw:iamodp:148
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    Cited by:

    1. Renner, Swetlana & Götz, Linde & Prehn, Sören & Glauben, Thomas, 2014. "The influence of infrastructure on regional wheat trade in Russia: A gravity model approach," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182840, European Association of Agricultural Economists.

    More about this item

    Keywords

    Gravity Model Estimation; Poisson Pseudo Maximum Likelihood; Fixed Effects Model; Random Intercept Model;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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