arXiv 3 Sep 2019 · Econometrics · publishedJournal of International Economics (2021) · 176 citations (OpenAlex)
arXiv:1909.01327 · PDF · DOI · OpenAlex · Extracted main text
We study the incidental parameter problem for the “three-way” Poisson {Pseudo-Maximum Likelihood} (“PPML”) estimator recently recommended for identifying the effects of trade policies and in other panel data gravity settings. Despite the number and variety of fixed effects involved, we confirm PPML is consistent for fixed $T$ and we show it is in fact the only estimator among a wide range of PML gravity estimators that is generally consistent in this context when $T$ is fixed. At the same time, asymptotic confidence intervals in fixed-$T$ panels are not correctly centered at the true point estimates, and cluster-robust variance estimates used to construct standard errors are generally biased as well. We characterize each of these biases analytically and show both numerically and empirically that they are salient even for real-data settings with a large number of countries. We also offer practical remedies that can be used to obtain more reliable inferences of the effects of trade policies and other time-varying gravity variables, which we make available via an accompanying Stata package called ppml_fe_bias.
appendix boundary found by appendix_command · 47% of the source is main text. Read the extracted text to check this.
The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Santos Silva and Tenreyro (2006) The Log of Gravity | 0.950 | 7 | 4 | 86% |
| 2 | Kauermann and Carroll (2001) A note on the efficiency of sandwich covariance matrix estimation | 0.941 | 6 | 4 | 83% |
| 3 | Jochmans (2016) Two-Way Models for Gravity | 0.928 | 5 | 4 | 80% |
| 4 | Yotov, Piermartini, Monteiro, and Larch (2016) An Advanced Guide to Trade Policy Analysis: The Structural Gravity Model | 0.928 | 5 | 4 | 80% |
| 5 | Neyman and Scott (1948) Consistent Estimates Based on Partially Consistent Observations | 0.928 | 5 | 3 | 80% |
| 6 | Fernández-Val and Weidner (2016) Individual and Time Effects in Nonlinear Panel Models with Large N, T | 0.918 | 22 | 5 | 77% |
| ARE | unmatched citation key ARE | 0.874 | 6 | 4 | 67% |
| 8 | Larch, Wanner, Yotov, and Zylkin (2019) Currency Unions and Trade: A PPML Re-assessment with High-dimensional Fixed Effects | 0.843 | 4 | 4 | 75% |
| 9 | Pfaffermayr (2021) Confidence intervals for the trade cost parameters of cross-section gravity models | 0.843 | 4 | 4 | 75% |
| 10 | Pfaffermayr (2019) Gravity models, PPML estimation and the bias of the robust standard errors | 0.843 | 4 | 3 | 75% |
Showing the top 10 of 69 scored citations. 1 of these could not be matched to a bibliography entry, so only the citation key is shown.
arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.