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The Poisson quasi-maximum likelihood estimator: A solution to the “adding up” problem in gravity models

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  • Arvis, Jean-Francois
  • Shepherd, Ben

Abstract

This paper shows that the Poisson quasi-maximum likelihood estimator applied to the gravity model produces estimates in which, summing across all partners, actual and estimated total trade flows are identical. Other methods such as OLS do not have this desirable property. Indeed, Poisson is the only quasi-maximum likelihood estimator that preserves total trade flows. This result is an additional reason for preferring Poisson as a workhorse gravity model estimator.

Suggested Citation

  • Arvis, Jean-Francois & Shepherd, Ben, 2011. "The Poisson quasi-maximum likelihood estimator: A solution to the “adding up” problem in gravity models," MPRA Paper 34334, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:34334
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    References listed on IDEAS

    as
    1. Santos Silva, J.M.C. & Tenreyro, Silvana, 2011. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," Economics Letters, Elsevier, vol. 112(2), pages 220-222, August.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
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    More about this item

    Keywords

    International Trade; Gravity Model; Poisson; Quasi-Maximum Likelihood Estimator;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F10 - International Economics - - Trade - - - General

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