Poisson Pseudo Maximum Likelihood Method Research Articles

THE IMPACT OF DIGITAL SERVICES TRADE RESTRICTIVENESS ON TRADE IN TELECOMMUNICATIONS, COMPUTER, AND INFORMATION SERVICES: EVIDENCE FROM OECD COUNTRIES

This study analyzes the impact of digital services trade restrictiveness on trade in telecommunications, computer, and information services of Organisation for Economic and Co-operation Development countries by utilizing the Poisson Pseudo Maximum Likelihood method covering the period 2014-2022. The findings of the study statistically significantly confirm the disincentive impact of the higher degree of digital services trade restrictiveness on both exports and imports in telecommunications, computer, and information services. Therefore, more relaxing policies can most likely help to enhance the trade in this type of services due to mainly diminishing trade costs. Besides, to make use of more advantages of increasing digitalization, further cooperation and dialogue across countries, particularly with technologically advanced countries, is required. By this means, domestic services suppliers can attain foreign advanced knowledge and technology at relatively moderate costs, thus productivity can be improved, and eventually, more trade in services can be achieved.

Investigating the Validity of Climate Migration: Empirical Evidence from the Most Polluted Countries

The literature generally finds that lower air quality has been an important determinant of migration. This study builds a migration model employing annual data from 2010 to 2019 for the most polluted ten countries to test the validity of migration caused by air pollution through PM2.5 concentration. The Poisson Pseudo Maximum Likelihood method results show that air pollution is one of the most significant determinants of migration from the most polluted countries. Moreover, the low income level also pushes people to migrate more from their origin regions than richer ones. The study provides some policy recommendations for policy-makers in the countries where people breathe the most polluted air: (i) governments should follow growth-promoting economic policies; (ii) environment-friendly production techniques should be implemented to prevent worsening environmental quality; (iii) climate-induced mass migration should be considered while making security policy arrangements.

Effects of logistics performance on Vietnam’s exports: a quantitative analysis using the PPML method

This study aims to analyze the effects of logistics performance on Vietnam’s exports at both the overall level and in specific aspects. We investigate the linkage between logistics performance and Vietnam’s exports based on a panel of bilateral trade from Vietnam to 158 trading partners from 2007 to 2018. Using the Poisson pseudo-maximum likelihood method, the positive and significant effects of Vietnam’s and importing countries’ logistics performance on exports are identified. Our estimates become highly consistent after controlling for both time-specific effects and time-invariant country-fixed effects and remain robust to changes in the model specification, contributing reliable empirical evidence to the literature. Considering the specific aspects of logistics performance, we find the significant roles of the ability to track and trace consignments, the quality of logistics services, the customs clearance efficiency, and the timeliness of shipments in trade. From Vietnam’s perspective, improvements in tracking and tracing ability and timeliness can enhance exports to other countries, with larger effects than those of trading partners. Based on these findings, this study provides evidence for policymakers to effectively enhance trade with other countries by developing the national logistics system alongside further logistics cooperation with trading partners and with a greater focus on tracking and tracing ability and timeliness.

Revisiting India’s Export Potential: Modern Gravity Model Approach

The high contribution of India’s exports to its gross domestic product underscores the vulnerability of macroeconomic shocks like the COVID-19 in terms of losses in export revenues, increased cost of import and slowdown in growth. The scale of impact also depends on the degree of trade concentration, geographical expansion, export potential and strategic relationship of a country with its trading partners. This article aims to examine these factors using the modern gravity model approach. It also intends to analyse the export intensity and export potential of India with its 25 major trading partners. The results are estimated by using the Poisson pseudo-maximum likelihood method for the period 1991–2020. The results show that the exports between two nations are remarkably impacted by the trade cost and combined economic size. Furthermore, variables like population and islands are introduced in the extended gravity model, which positively impacts India’s exports. The direction of India’s exports witnessed a reversal in trend towards the traditional export destinations in 2020 compared to emerging countries from 2010 onwards. The export potential index also explains that India has the scope to enhance the export potential with developed nations as advocated by the Heckscher–Ohlin model. JEL Codes: F14, F49

Trade Destruction and Trade Diversion of Indian Anti-dumping Duties Against Bangladesh

In this study, we investigate Indian anti-dumping (AD) duties imposed on eight products (Harmonized System classification) from Bangladesh over the period 1998–2020. Using the Poisson pseudo-maximum likelihood method, panel regression analysis is applied to examine the relationship between Indian AD duties and goods imported from Bangladesh. Our results provide weakly suggestive significant evidence of trade destruction in the full sample, though statistical significance is enhanced for all product groups other than lead-acid batteries at the product-level investigation. We also provide suggestive evidence for trade diversion from AD duties. Overall, our results show Indian AD duties to be correlated with a decrease in imports from Bangladesh, and an increase in imports of goods from other, unnamed countries. This suggests that India’s protectionist measures may have been ineffective in protecting local producers, as any adverse effects of protectionism on Bangladesh may be offset by import diversion to other foreign suppliers. We also discuss the policy implications of these findings.

Three-way gravity models with multiplicative unobserved effects

Summary This paper investigates three-way gravity models with multiplicative unobserved effects, which are popular in bilateral trade analysis and many other contexts. Such models are usually estimated by the fixed effects Poisson pseudo maximum likelihood method. As an alternative, we extend the estimation strategy proposed by Jochmans (2017) to our new settings by constructing moment conditions that are independent of the unobserved effects. Our method entails estimation of the conditional mean of a variety of functional forms. The generalized method of moments (GMM) estimator based on these moment conditions is N-consistent and asymptotically normally distributed. We also discuss the estimation of dynamic models by extending the linear feedback models to our three-way settings. Through various simulation designs, we show that our GMM estimator outperforms the competing Poisson pseudo maximum likelihood estimator. As an empirical application, we estimate the effects of the currency unions on exports.

Asymptotically Consistent Estimation of Preferential Attachments in Growing Networks

Preferential attachment, also referred to as the “rich-get-richer” mechanism, characterizes the ability of already existing nodes in an evolutionary network to acquire new connections from newly-coming nodes throughout the growing process of the network. This mechanism is responsible for the emergence of some critical structures in many real networks, such as the Saccharomyces cerevisiae protein-protein interaction network, scientific collaboration network, and bitcoin transaction network. Clearly, it is very important to accurately estimate the preferential attachment mechanism for a growing network in interest. Although it has long been aware that the existing widely-used methods yield significantly biased estimates of preferential attachments, the underlying mechanism is not completely understood and not well explained. By rewriting preferential attachment from a deterministic formulation to a stochastic one, this paper reveals two major problems existing in the current methodologies, thereby well explaining why traditional methods introduce biases to the estimates of preferential attachments. To avoid the negative effects of these two problems, a new method is proposed based on the Poisson Pseudo Maximum Likelihood method for estimating preferential attachments, which provides asymptotically consistent estimation to preferential attachments. More importantly, even with insufficient information, the new method can still provide an estimate with high precision, showing a significant advantage in measuring preferential attachments based on small-sized samples. The new method is also robust against network parameter changes. The findings may shed some lights onto deeper understanding of the evolutionary processes of real networks.

Modeling of the Nexus Between Environmental Regulations of Trade Partners and Export Volumes: Analysis of Russian Regions

Export development is one of the priorities of the Russian economy. Exporters and companies planning to enter the international market face a number of limiting factors. Transitional climate risks, mainly represented by trading partner countries' environmental regulation aimed at internalizing national and global negative environmental externalities, are also among these factors. However, the global climate agenda can not only have a negative impact on export performance, but also generate growth opportunities. The purpose of this study is the econometric modeling of the impact of environmental regulation of trading partner countries on the dynamics of export volumes of Russia's regions based on data for the period of 2013-2020. In addition, the study is aimed at identifying regional factors that determine the sign of the influence of climate regulation of importing countries on export volumes. The study assumes that the effect of climate regulation on export performance is different for the regions of Russia and is determined by institutional and environmental characteristics. The estimation of the gravity equation using the Poisson pseudo-maximum likelihood method for different subsamples of Russia's regions demonstrated that the stringency of environmental regulation of the partner countries is negatively related to the volumes of Russian exports, but there is a positive correlation in the case of regions characterized by favorable conditions for innovation activity and active environmental policy. It was also detected that the regional budget spending on environmental protection do not provide a stimulating effect of climate regulations. Thus, in order to minimize the negative impact of transitional climate risks, special attention of the state should be paid to creating an environment conducive to innovation and the formation of the most effective environmental policy at the regional and national levels. The theoretical significance of the study lies in expanding the traditional gravity model by including the environmental determinants of trade, while the practical significance of the work is represented by recommendations to regional authorities on minimizing the negative impact of transitional climate risks.

The effectiveness of bilateral investment treaties in attracting foreign direct investment: The case of Serbia

Over the past several decades there has been increasing competition among countries to attract foreign direct investment, which is often hypothesised to positively affect the development of host countries. Bilateral investment treaties are one of the policy instruments the host countries often use as a means to encourage foreign direct investment inflows. In this study, we aim to explore the effectiveness of bilateral investment treaties in achieving these goals in the case of Serbia. Using the panel data on Serbia and its 198 partner economies observed in the period 2010-2019, we estimate a gravity model of foreign direct investment inflows by applying the Poisson pseudo-maximum likelihood method. We found that ratified bilateral investment treaties have a statistically significant positive effect on foreign direct investment inflows in Serbia. Furthermore, the quality of the treaties was found to positively affect the inflows, whereby the anti-discriminatory provisions seem to be the most important. The results imply that Serbia could attract more foreign direct investment by concluding new bilateral investment treaties and improving the quality of the existing ones.

Quality of Indonesia’s domestic institutions and export performance in the era of global value chains

The focus of this research is on analysing the effects of institutional quality and trade agreements on Indonesia bilateral trade in four commodity groups in the era of global value chain (GVC). Employing a panel data gravity model of Indonesian export of four commodities to Indonesia’s trading partners from 2000 to 2018 and estimating the Feasible Generalized Least Squares (FGLS) and the Poisson Pseudo Maximum Likelihood Method (PPML), the results of this study find that institutional quality plays a different role in explaining Indonesia’s export performance of those four commodities, despite the fact that institutions contribute positively. On two commodities that are prospective to increase Indonesia participation in the global value chain, exported intermediates and consumer goods, we find that although both domestic institutions and trading partner institutions are significant to Indonesian export, but we argue that domestic institutions contribute more. This study also reveals that through tariff reductions, Indonesian trade agreements are significant regarding export of all the four commodities group. However, even though tariffs are significant, we find that the quality of institutions, especially domestic institutions, has a greater effect on Indonesia's exports.

The institutional determinants of outward foreign direct investment

Abstract This study focuses on the influence of institution quality on foreign direct investment (FDI) outflows. For empirical estimation, we use a dataset covering 102 home and 67 host countries from 2001 to 2016. We use the gravity approach and apply the Poisson pseudo maximum likelihood method to derive unbiased estimates. A set of institutional variables in a country is integrated into a single institutional index using principal component analysis. Our main findings are the following. First, we only identify a positive influence of the level of institutional development on FDI outflows for the institutionally developed countries. Second, we have not found evidence for crowding out national investment in the countries with weak institutions. Third, increases in the level of institutions stimulate horizontal rather than vertical outward FDI in an economy. Finally, institutional distance negatively affects the level of outward FDI only when the institutional distance between the two countries is large. The policy implications of this research are strongly in favour of further developing institutions.

Trade Continuity and Global Production Sharing in Emerging Economies: Evidence from Panel Gravity Analysis

ABSTRACT This article examines the effect of trade continuity, measured by the lagged imports of intermediate goods, on global production sharing in emerging economies. We estimate an augmented gravity model using the Poisson pseudo maximum likelihood method with a panel dataset of bilateral exports of 29 emerging economies from 2004 to 2017. Our results show that trade continuity positively affects global production sharing. We provide new empirical evidence that trade continuity is process-specific and may vary between parts and components and final assembly stages. Our findings have policy implications on the process-specific nature of global production sharing.

Analysis of the Effects of Innovation on the Export of the Agri-food Sector in Morocco

It is commonly accepted that the majority of companies have started to introduce R&D activities and innovation to improve their exports, especially, after the appearance of the pandemic of COVID-19. The objective of this work is to analyze the effects of innovation on the export of the agri-food sector in Morocco through a study based on panel data covering the period 2007-2018 by exploiting a gravity model estimated by the Poisson Pseudo-Maximum Likelihood method (PPML). The results of our study showed that the export of the agri-food sector is positively influenced by the innovative factor of the country (patent filings) alongside the traditional factors of our model such as production, the wealth of partner countries and distance.

The impact of Spanish immigrants on the Trinidad and Tobago’s economy: can Spanish as a second language promote trade?

ABSTRACT This paper examines the extent to which having Spanish as a second language influences trade in Trinidad and Tobago (T&T). Our study is motivated by the inflow of Venezuelan migrants into T&T on account of political and economic tensions in Venezuela. This influx of immigrants can positively impact the T&T economy using the Rybczynski theorem. This is necessary given that the country faces an aging population and a decline in trade with traditional trade partners. Gravity modelling including Pooled OLS, Fixed Effects Model, Random Effects Model and the Poisson-Pseudo Maximum Likelihood method are used to examine whether language affects T&T’s extra-regional trade with Spanish speaking countries. It is determined that language is a significant factor in promoting trade in T&T, increasing bilateral trade and exports. The impact of Spanish immigrants on the T&T economy reduces the loss of exports as compared to if Spanish immigrants were absent. We suggest an intensification of the adoption of Spanish as a second language in T&T in order to promote trade with other Spanish speaking countries as it would reduce communication costs.

Global production sharing and trade effects: an analysis of Eurasian Economic Union

This study examines the trade effects of the Eurasian Economic Union on global production sharing. We use a panel dataset of bilateral exports of intermediate goods, parts and components and final assembly for 12 Eurasian countries with 28 partners for 2000–18. We estimate a gravity model using the Poisson Pseudo Maximum Likelihood method to mitigate zero trade values and heteroskedasticity issues. Our analysis provides new empirical evidence on significant net trade creation effects of 111% in intermediate goods exports due to EAEU formation. Our findings also highlight that a substantial share of the increase in intermediate goods exports originates from trade creation in final assembly exports while parts and components show net trade diversion effects. Further, a country-level analysis reveals that the trade effects of EAEU are heterogeneous across all the members, with Armenia and the Russian Federation benefiting the most and the Kyrgyz Republic benefiting the least from the EAEU formation. Our study has important policy implications on promoting production sharing in the Eurasian region and hence remains of interest to policymakers.

Do Institutional Characteristics of Microfinance Institutions Matter for External Sources of Funds? Evidence from Bangladesh

This study mainly aims to examine whether the institutional characteristics matter for external sources of funds of microfinance institutions (MFIs) in Bangladesh considering unbalanced panel data of 258 MFIs for the period of 2009-2014. The study considers four institutional characteristics of MFIs, namely, the number of branches, profitability measured by return on assets, location, and age of MFIs as well as several macroeconomic variables such as interest rate cap, economic growth, and inflation. The external sources of funds are decomposed into five sub-panels, that is, government funds, loans from commercial banks, loans from Palli Karma Sahayak Foundation, donors' funds, and loans from other MFIs in order to draw more conclusive evidence. It also helps provide a comparative analysis on the effects of each institutional characteristic of MFIs on different types of external sources of funds. The study employs the Poisson pseudo maximum likelihood method which is supposed to be more appropriate in the present case for avoiding the problem associated with zero value of dependent variable. The estimation results suggest that institutional characteristics of the MFIs contribute considerably in supporting the growth and development of the industry by drawing funds from external financial sources albeit some indicators of institutional characteristics refer to adverse impact on a few external sources of funds. In the case of macroeconomic factors, market intervention through the interest rate cap limits the operation of microfinance institutions making funds scarce for them. Additionally, the comparative analysis of alternative funding both from the debt and equity sources will help policymakers and managers to adopt an appropriate policy to attain the cost-effectiveness of MFIs of Bangladesh which is one of the important policy implications of the study.

Effect of Trade Liberalization on Asymmetric Countries for Homogenous and Differentiate Product: Case of Pakistan-China Free Trade Agreement

The study performs an empirical test to assess the impact of the Pakistan-China Free trade agreement (FTA) on Pakistan, China, and the World's exports under homogenous and differentiated products. This study employs the modeling with Poisson specification with Poisson Pseudo-Maximum Likelihood method for the estimations. The results of empirical test show that the effect of FTA on the FTA and Non-FTA countries is greater in the differentiated product as compared to the homogenous product. Therefore, one of the most important policy implications provided by this study is that export enterprises need to concentrate on differentiated products as compare to the homogenous products after the implementation of the Pakistan-China FTA. Moreover, the previous literature concluded that Pakistan-China FTA was more beneficial for China as compared to Pakistan. However, according to this study, if Pakistani enterprises focus more on differentiated products as compared to homogenous products, then it will be equally beneficial for both Chinese and Pakistani enterprises. This study will contribute to the literature by considering the Bertrand competition between asymmetric countries and find out the effect of the FTA on these three countries. It considers China, Pakistan, and the Rest of the World as first, second, and third countries.

Determinants of Foreign Direct Investment in Developed and Developing Countries: Impact of Political Stability

Stable political environment and prominent development of political institutions increase foreign direct investment flows by providing lower risks for investors. However, this impact can vary according to the development of the country. This study aims to investigate the impact of various indicators of political stability on foreign direct investment attraction for different economies distinguished by their development level. Our database includes 66 FDI-recipient countries and 98 FDI-investing countries for the period from 2001 to 2018. By applying the gravity approach and Poisson Pseudo Maximum Likelihood method with instrumental variables (IV PPML), we model bilateral FDI flows, incorporating variables reflecting various aspects of political stability formed by the principal components analysis. Interestingly, we found mixed results regarding the impact of political stability on FDI flows. In particular, political stability indicators were found to be insignificant, when analysing the bilateral FDI flows for the group of developed economies. We obtained similar result for the group of developing economies. However, political stability variables significantly influence FDI flows for countries with different development level, confirming the hypothesis that countries’ development affects bilateral FDI flows. Besides, we discover the significant difference between developed and developing countries referring to FDI-investors. Based on the obtained results, we highlight a few policy implications for developing and developed economies.

A gravity model for international trade and conflict

Abstract. This paper investigates the nexus between conflict and trade using data from 77 countries. For this purpose, it puts forward a gravity model that is augmented with interstate conflict casualties. In order to overcome statistical problems related to heteroscedasticity and the omission of the extensive margin (the zero observations), the gravity model is estimated using a Poisson Pseudo-Maximum Likelihood method (PPML). The model suggests a downward impact on trade that affects all sides of the conflict, whether they suffer casualties or deal them. However, said impact remains small, which hints that even before direct conflicts occur, the involved countries are less likely to have significant trade flows. Keywords. International trade, Armed conflict, Gravity model. JEL. C23, F14, F51.

Effects of ASEAN-India Free Trade Agreement on agricultural trade: The gravity model approach

This paper analyses the trade creation and trade diversion effect of ASEAN-India Free Trade Agreement (AIFTA) on agricultural trade among the member countries. Data on 50 countries with five major FTAs for the period 2005–2014 were used. Gravity model by ordinary least square and Poisson Pseudo-Maximum Likelihood (PPML) methods was estimated. The PPML method corrects the problem of zero trade and heteroscedasticity in the regression model. Analysis shows a pure trade creation effect of AIFTA, MERCOSUR, and EU-15 in the time fixed effect model. Under the time and country fixed effect model, AIFTA, SAPTA, and NAFTA have stronger trade creation effect than trade diversion effect. These results suggest that agricultural sector can be pushed for further trade liberalisation in the FTAs.