Gravity model estimation: fixed effects vs. random intercept Poisson pseudo-maximum likelihood |
| |
Authors: | S Prehn B Brümmer T Glauben |
| |
Institution: | 1. Department of Agricultural Markets, Marketing and World Agricultural Trade, Leibniz Institute of Agricultural Development in Transition Economies, Halle (Saale), Germany;2. Department of Agricultural Economics and Rural Development, Georg-August-University G?ttingen, G?ttingen, Germanyprehn@iamo.de;4. Department of Agricultural Economics and Rural Development, Georg-August-University G?ttingen, G?ttingen, Germany |
| |
Abstract: | The standard Anderson and van Wincoop gravity model has typically 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, at least in a cross-sectional context, economically relevant variables such as exporter and importer gross domestic product are disregarded. We propose a random intercept model to address this gap. For large datasets, this approach not only provides identical estimates like a fixed-effects approach, but also allows for the estimation of exporter- and importer-invariant variables. |
| |
Keywords: | Gravity model Poisson pseudo-maximum likelihood fixed-effects model random intercept model |
|
|