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Structural gravity estimation & agriculture

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  • Prehn, Sören
  • Brümmer, Bernhard
  • Glauben, Thomas

Abstract

Recently, discussion about the appropriate estimation of gravity trade models has started in agriculture. Here, we are going to review recent developments in the literature. It appears that fixed effects Poisson Pseudo Maximum Likelihood is not only the only consistent estimator [Santos Silva and Tenreyro, 2006] but also it already allows for a structural fit [Fally, 2012]. Fixed effects in conjunction with the adding-up property of Poisson Pseudo Maximum Likelihood - which has been so far neglegted - can be harnessed to directly deduce multilateral resistance indexes (i.e. general equilibrium effects) from reduced-form estimation. This innovation made by Fally will ease comparative statics and incidence analysis, making Poisson Pseudo Maximum Likelihood even more preferable in practice.

Suggested Citation

  • Prehn, Sören & Brümmer, Bernhard & Glauben, Thomas, 2012. "Structural gravity estimation & agriculture," DARE Discussion Papers 1209, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    • Handle: RePEc:zbw:daredp:1209
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    1. Thomas Kopp & Sören Prehn & Bernhard Brümmer, 2016. "Preference Erosion – The Case of Everything But Arms and Sugar," The World Economy, Wiley Blackwell, vol. 39(9), pages 1339-1359, September.
    2. Cipollina, Maria & Laborde, David & Salvatici, Luca, 2013. "Do Preferential Trade Policies (Actually) Increase Exports? An analysis of EU trade policies," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150177, Agricultural and Applied Economics Association.

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    Keywords

    Gravity Estimation; Poisson Pseudo Maximum Likelihood; Adding-up; Structural Fit;
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