Gravity Model Estimation: Fixed Effects vs. Random Intercept Poisson Pseudo Maximum Likelihood

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.


Variant title:
Gravity Modell Schätzung: Fixed Effekts vs. Random Intercept Poisson Pseudo Maximum Likelihood
Issue Date:
2014
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
1438-2172 (Other)
PURL Identifier:
http://purl.umn.edu/169094
Total Pages:
8
JEL Codes:
F1; C3
Series Statement:
IAMO Discussion Paper
148




 Record created 2017-04-01, last modified 2017-08-27

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