Gravity model estimation: fixed effects vs. random intercept poisson pseudo maximum likelihood

In: Discussion paper 148

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.

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Book(print)#12014

Gravity model estimation: fixed effects vs. random intercept poisson pseudo maximum likelihood

In: Discussion paper 148

Prehn, Sören

Prehn, Sören

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Book(print)#22014

Gravity model estimation: fixed effects vs. random intercept poisson pseudo maximum likelihood

In: Discussion paper No. 148

Prehn, Sören; Brümmer, Bernhard; Glauben, Thomas

Prehn, Sören; Brümmer, Bernhard; Glauben, Thomas

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