Journal article
Currency Unions and Trade: A PPML Re-assessment with High-dimensional Fixed Effects
Oxford bulletin of economics and statistics, v 81(3), pp 487-510
01 Jun 2019
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
Recent work on the effects of currency unions (CUs) on trade stresses the importance of using many countries and years in order to obtain reliable estimates. However, for large samples, computational issues associated with the three-way (exporter-time, importer-time, and country pair) fixed effects currently recommended in the gravity literature have heretofore limited the choice of estimator, leaving an important methodological gap. To address this gap, we introduce an iterative poisson pseudo-maximum likelihood (PPML) estimation procedure that facilitates the inclusion of these fixed effects for large data sets and also allows for correlated errors across countries and time. When applied to a comprehensive sample with more than 200 countries trading over 65 years, these innovations flip the conclusions of an otherwise rigorously specified linear model. Most importantly, our estimates for both the overall CU effect and the Euro effect specifically are economically small and statistically insignificant. We also document that linear and PPML estimates of the Euro effect increasingly diverge as the sample size grows.
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Details
- Title
- Currency Unions and Trade: A PPML Re-assessment with High-dimensional Fixed Effects
- Creators
- Mario Larch - University of BayreuthJoschka Wanner - University of BayreuthYoto V. Yotov - Ifo Institute for Economic ResearchThomas Zylkin - University of Richmond
- Publication Details
- Oxford bulletin of economics and statistics, v 81(3), pp 487-510
- Publisher
- Wiley
- Number of pages
- 24
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000465002900001
- Scopus ID
- 2-s2.0-85057880744
- Other Identifier
- 991019167607904721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Economics
- Social Sciences, Mathematical Methods
- Statistics & Probability