Poisson Pseudo Maximum Likelihood Research Articles

Determinants of Bilateral Agricultural Trade of SAARC Region: a Gravity Model Approach

The South Asian Association for Regional Cooperation (SAARC) region is an important player in the world agriculture trade. They have vast potential to strengthen their position in global agricultural trade due to theregion's opportunities to increase agricultural production combined with growing global demand. To discover the SAARC potential of agricultural trade patterns, the present paper examines the determinants of bilateral agricultural exports from 2000 to 2019. The gravity model was estimated by employing the Poisson Pseudo Maximum Likelihood (PMML) technique, including zero trade flows for panel data. The results confirm the positive and significant impact of exporter gross domestic product (GDP), importer GDP, Broder, common language, South Asian Free Trade Area (SAFTA), and India-Sri Lanka Free Trade Agreement (ISFTA) on bilateral agricultural trade inthe SAARC region. On the other hand, distance and development levels significantly negatively impact bilateral agricultural trade. Lastly, the study showed an insignificant impact of the bilateral exchange rate.

Trade Impediments in Indonesia

This study investigates the effect of various types of trade impediments on Indonesia's trade flows. We categorize tariff measures, non-tariff measures (NTMs), and the lack of trade facilitation measures into at-the-border and behind-the-border barriers. A gravity model is applied to a panel dataset covering 177 of Indonesia's trade partners from 2007 to 2016. This study shows that Indonesia's trade protection remains high, particularly due to the increasing use of NTMs. Furthermore, the lack of trade facilitation also contributes to increasing trade costs, particularly those associated with trade logistics and administration. We also demonstrate why feasible generalized least square is preferable to ordinary least squares and pseudo-Poisson maximum likelihood when estimating a gravity model using panel data that are auto-correlated and contain a large number of zero observations.

Tariff cost and cross-border M&A affiliate sales: Evidence from China

Cross-border mergers and acquisitions (M&A) is a major form of foreign direct investment (FDI). In contrast to many developed countries, the majority of China’s cross-border M&As are vertical rather than horizontal. I study the difference in the reaction to tariff of horizontal and vertical M&A subsidiary sales. The baseline OLS regressions show that as export tariff cost increases, cross-border M&A affiliate sales relative to export rises, and the effect mainly comes from vertical affiliates, especially in downstream subsidiaries. The main results are robust to the Poisson pseudo maximum likelihood (PPML) regressions and an instrumental variable (IV) approach. A simple model is developed to reconcile the empirical findings when horizontal and vertical M&As co-exist in the same market and further tested at both the extensive and intensive margins. The results offer new insights to understanding the performance of M&As from developing economies.

Trade Infrastructure and Export Competitiveness in the East African Community

The purpose of this paper is to examine the influence of trade infrastructure components: port infrastructure, telephone usage and electricity on the export competitiveness of firms in the East African Community (EAC). The study adopted the structural gravity model and the Poisson Pseudo Maximum Likelihood (PPML), a nonlinear estimation method that was applied in STATA on balanced panel data for the period of 2007 to 2018. Data was obtained from World Bank International Trade Centre (ITC) and World Bank development indicators. Results show that telephone usage, electricity and port infrastructure are positive and significant predictors of export competitiveness in East African Community partner states. The results of this study show that electricity usage, telephone usage and port infrastructure are important contributors to improving export competitiveness in the EAC. There is a need to examine the intricate nature of the EAC economy in order to further this study’s findings. The EAC partner states need to embrace deep integration by removing the behind-the-border trade barriers, in addition to other trade restrictions, to create a common economic space among member states. This will further shrink the delivery time and the tracking and tracing of exports hence improving the competitiveness of EAC exports within the region and outside. Also, common and harmonized economic policies and regulations can be implemented through mutual recognition agreements where countries agree to recognize one another’s conformity assessments.

Determinants of Tourism Demand in Context of Environmental Quality

Tourism is a sector that contributes to the economic development of both developed and developing countries, and with this structure, it contains the environmental, social, and economic dimensions of sustainable development. This study aims to estimate the effects of environmental quality and other determinants on international tourism demand. Within the scope of the 2008–2017 period, the tourism demand from 27 different countries to the top 10 countries that attract the most tourists worldwide was examined using the multidimensional panel gravity model. The effects of environmental, economic, and non-economic indicators on tourism demand were investigated using Poisson pseudo-maximum likelihood (PPML) estimation methods. The findings showed that the low environmental quality significantly reduces tourism demand. In addition, tourist income, common language, and common border had positive effects on tourism demand, while distance, relative price, and visa restrictions had negative effects. This study offers recommendations for policymakers and other stakeholders and contributes to the literature on tourism economics and the environment.

Response of Indonesian mineral supply to global renewable energy generation: Analysis based on gravity model approach

The captivating surge of energy transitions in the major industrialized nations has elevated the global demand for critical minerals. The demand pattern has enabled mineral-abundant emerging economies like Indonesia to enter the international market by exporting mineral goods. Accordingly, we investigate the Indonesian mineral export supply's response to the renewable energy production of the 18 clean energy-generating countries, considering crude oil and mineral prices, exchange rates, and economic growth of the resource and importer countries from 1990 to 2020. In doing so, we apply the Poisson Pseudo-maximum Likelihood (PPML) approach to measuring the panel gravity model for mineral exports in Indonesia. As a result, we observe a significant response of Indonesia's mineral export supply to the renewable energy generation of the 18 mineral importing countries. Besides, mineral and crude oil prices are insignificant, whereas the importer countries' exchange rates and income growth positively influence Indonesia's mineral export growth. However, Indonesia's income factor negatively affects its mineral export supply. Finally, we validate our results using an alternative estimator, the Driscoll-Kraay robust standard error estimation technique. Therefore, our findings suggest implementing Indonesia's existing mineral policy to produce finished mineral goods to materialize the worldwide vision of energy transitions toward a crossroad of net-zero emissions by the middle of the current century.

Can WTO membership boost intra-African trade?

This study uses the modified gravity model to examine the determinants of trade in goods within African countries. The panel data covers the period between 2000 and 2019 for all 54 countries in Africa. The article contributes to the existing literature on trade determinants in Africa, including distance and economic size in the study of bilateral trade, by augmenting the gravity model with the inclusion of WTO membership. The gravity model is applied using three different methods of estimation: Ordinary Least Squares (OLS), Poisson Pseudo Maximum Likelihood (PPML), and Gamma Pseudo Maximum Likelihood (GPML) models. Our findings show that the GDP of both exporters and importers, sharing common language and borders positively affect intra-African trade, while the impact of distance is significantly negative. We also found that being a WTO member significantly enhances international trade between African partner countries. This study can help formulate better trade policies for African countries.

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.

Is manufacturing trade a stepping stone or an obstacle to service trade?

PurposeThe authors empirically examined the theoretically recognized industrial linkages between manufacturing and services from the trade perspective. In particular, they confirmed the trade effect of manufacturing on services, given that global value chain fragmentation pervades and splits manufacturing and services segments separately in developed and developing countries.Design/methodology/approachBased on observations of 47 countries with manufacturing and service trade data from 1990 to 2020 and with gravity model specification, the authors primarily used the Poisson pseudo-maximum likelihood (PPML) estimation with multiple levels of fixed effects. Considering that many zero values are included in the dependent variable and potential endogeneity, other methods such as Tobit regression, Heckman estimation and two-stage least squares estimation (2SLS) are used. Subsample estimation also supplemented the empirical research.FindingsThe results showed that manufacturing trade is a stepping-stone rather than an obstacle to service trade. This finding exhibited significant robustness under different model specifications, instrumental variable estimation and subsample checks. Moreover, in contrast to the north–north country ties, manufacturing trade between northern and southern countries has played a prominent stepping-stone role; meanwhile, manufacturing trade among core–peripheral countries has a considerably more significant impact than the outcomes of core–core and peripheral–peripheral countries.Originality/valueThe authors provided direct clarification and revealed that trade in manufacturing remains the demand basis for service trade. As trade in manufacturing and services are typical phenomena of transnational production linkages, the authors suggested exploring the underlying role of global value chain (GVC) fragmentation and the offset and even barrier effect of biased institutional arrangements on GVC fragmentation.

ECONOMIC COMPLEXITY AND BILATERAL TRADE FLOWS IN SELECTED COMESA AND EAST ASIA COUNTRIES

A particular country’s productive knowledge and sophistication become a crucial determinant for the exported products in the increasingly integrated global trade. However, studies that emphasize the connection between economic complexity and trade flows are still sparse. This research aims to examine the role of economic complexity on bilateral trade flows of 27 countries in COMESA and East Asia using the gravity model from 1995 till 2019. Based on countries’ geographical regions and income levels, the empirical estimation of the study applied the Poisson pseudo maximum likelihood (PPML) estimator. The main results are robust to various model specifications and consistent with the expectations of the gravity model indicators. The study found strong empirical evidence that the expansion of economic sophistication and diversification enlarges trade flows of different exported goods. Explicitly, economic complexity increases the exports of machinery and transport equipment alongside manufactured products, while its effects on agricultural exports are negligible. Thus, this study proposes that the countries should engage in more sophisticated Research and Development (R&D), attract multinational companies, establish industrial policies, and improve their productivity by utilizing the existing production network. They should move to a more diversified production and trade structure to enhance their bilateral trade flows.

Cross‐sectional Gravity Models, PPML Estimation, and the Bias Correction of the Two‐Way Cluster‐Robust Standard Errors*

AbstractIn cross‐section gravity models the two‐way cluster‐robust standard errors of the Poisson pseudo maximum likelihood (PPML) estimates tend to be considerably downward biased. However, two‐way clustering can be avoided if intra‐cluster correlation is induced by country‐specific trade shocks with uniform pass through (equi‐correlation) and the gravity model includes exporter and importer country fixed effects. In this case the pseudo‐within‐transformation of the PPML estimator projects out the corresponding components of the disturbances. In Monte Carlo simulations the Pustejovsky and Tipton (2018) bias correction for independent disturbances (i.e. ignoring clustering) reveals just a small downward bias of the estimated standard errors and confidence intervals with nearly correct coverage rates. Under deviations from equi‐correlation the bias is somewhat larger, but still comparable to the bias of the cluster‐robust standard errors with Pustejovsky and Tipton (2018) bias correction.

COVID-19 impact on tourism inflow in selected Asia-Pacific countries: a gravity model framework

PurposeThe main objective of this paper is to examine the impact of COVID-19 on the tourism flows of eight Asia-Pacific Countries: Australia, Hong Kong, Malaysia, New Zealand, the Philippines, Singapore, Taiwan and Thailand.Design/methodology/approachUsing monthly data from 2019M1 to 2021M10 and 48 origin and eight destination countries in a panel Poisson pseudo-maximum likelihood (PPML) estimation technique and gravity equation framework, this paper finds that after controlling for gravity determinants, COVID-19 periods have a 0.689% lower tourism inflow than in non-COVID-19 periods. The total observations in this paper are 12,138.FindingsA 1% increase in COVID-19 transmission in the origin country leads to a 0.037% decline in tourism flow in the destination country, while the reduction is just 0.011% from the destination. On the mortality side, the corresponding decline in tourism flows from origin countries is 0.030%, whereas it is 0.038% from destination countries. A 1% increase in vaccine intensity in the destination country leads to a 0.10% improvement in tourism flows, whereas vaccinations at the source have no statistically significant effect. The results are also robust at a 1% level in a pooled OLS and random-effects specification for the same model.Research limitations/implicationsThe findings provide insights into managing tourism flows concerning transmission, death and vaccination coverage in destination and origin countries.Practical implicationsThe COVID-19-induced tourism decline may also be considered another channel through which the global recession has been aggravated. If we convert this decline in terms of loss of GDP, the global figure will be huge, and airline industries will have to cut down many service products for a long time to recover from the COVID-19-induced tourism decline.Social implicationsIt is to be realized by the policymaker and politicians that infectious diseases have no national boundary, and the problem is not local or national. That’s why it is to be faced globally with cooperation from all the countries.Originality/valueThis is the first paper to address tourism disruption due to COVID-19 in eight Asia-Pacific countries using a gravity model framework.HighlightsAsia-Pacific countries are traditionally globalized through tourism channelsThis pattern was severely affected by COVID-19 transmission and mortality and improved through vaccinationThe gravity model can be used to quantify the loss in the tourism sector due to COVID-19 shocksTransmission and mortality should be controlled both at the origin and the destination countriesVaccinations in destination countries significantly raise tourism flows

Determinants of dairy‐product trade: Do subsidies matter?

AbstractGiven the recent changes in the supply and demand of dairy products, many opportunities arise for exporting and importing countries. This paper examines determinants of dairy‐product trade by applying the Poisson Pseudo‐Maximum Likelihood (PPML) method to the gravity model using panel data on 49 exporting and 235 importing countries for the 17 years from 2000 to 2016. The gravity model is estimated using both interval data and dynamic analyses. The results show that domestic subsidies have a modest, but significant, impact on dairy‐product trade across the models. For example, a 1% increase in subsidies leads to a roughly 0.02% increase in trade for an average country. Memberships in trade agreements, market size factors, and government institutions also positively affect dairy‐product trade. However, tariffs are insignificant in the main model specification. Results from the lag‐policy analysis show that the impact of subsidies disappears after the second year of distribution; whereas for the lead‐policy analysis, results suggest at least 3 years of anticipatory effects on domestic subsidies.

Effects of international trade on income revisited

This paper revisits the causal impact of international trade on income using a time‐variant instrument in a panel of counties between 1950 and 1995. In particular, in constructing the time‐varying instrument, it estimates the gravity model using the Poisson pseudo maximum likelihood (PPML) estimator. Trade has a significantly positive impact on income over the 1950–1970 period ‐the income elasticity of trade is between 0.35 and 0.50. However, air distance has not had any increasing effects on international trade since the 1970s. Therefore, the imputed trade from 1970 to 1995, used as an instrument, has little variance and should not have driven the change in income.

Towards Circular Economy: Unveiling Heterogeneous Effects of Government Policy Stringency, Environmentally Related Innovation, and Human Capital within OECD Countries

With reference to the existing literature, this paper investigates the heterogenous effect on the attainment of circular economy by government policies in the form of government stringency and government financial support, environmentally related innovations, and human capital. The study was carried out in 26 countries of the OECD from 2010–2019 using the Poisson pseudo-maximum likelihood (PPML) model and data from Eurostat and OECD datasets. Indicators for the independent variables were non-market-based stringency, market-based subsidy, gross domestic expenditure on R&D by source of funds, R&D expenditure intramural, national expenditure on environmental protection environmental protection, environmentally related patents with co-inventors, and employees involved in education and training. The results revealed that a significant effect of government stringency in the form of non-market-based stringency, environmental innovation, government financing on R&D, and national expenditure on environmental protection have significant impact on the attainment of circular economy within OECD countries. Surprisingly, there was no significant effect of the market-based subsidy on domestic material consumption (dmc). We conclude that a blend of government policies is the effective means of achieving a circular economy.

The effect of the informal economy on bilateral exports from sub‐Saharan African countries

AbstractThe purpose of this study is to analyse the impact of the informal economy on bilateral exports in sub‐Saharan African countries. We use a gravity model, to which we add indicators of the informal economy and indicator variables for different economic regions. The study used Pseudo‐Poisson Maximum Likelihood (PPML) and Heckman estimation techniques on data from the period 2002–2018. The results show that the informal economy has a negative impact on bilateral inter‐community exports and a positive impact on bilateral intra‐community exports. These results thus support the idea that the informal economy can accelerate the integration of regional economic communities and ultimately facilitate the establishment of bilateral export free trade areas at the continental level.

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.

DO PEOPLE MIGRATE DUE TO CLIMATE CHANGE? A COMPARATIVE ANALYSIS FOR ROMANIA AND POLAND

Nowadays people from all over the world have to face climate change. This issue can take different forms like changes in temperatures, sea level increases or natural disasters (floods, droughts, earthquakes, hurricanes, tsunami, heat waves). Throughout this paper we test the impact of climate change (proxied by the level of precipitations) on international migration from Romania and Poland to the main destinations from the European Union by testing the gravity model of migration. Due to the fact that both countries taken into consideration are exposed to extreme weather events like floods, it is important to find out how people deal with these problems. They adapt locally or migrate abroad? Policymakers need to know how people react to climate change because they have to develop specific adaptation policies. One significant novelty in our study is that we consider new and up-to-date reasons for migrating abroad from Romania and Poland. In this way we fill the gap on this topic related to Romania and Poland as origin countries. By applying a Poisson Pseudo Maximum Likelihood Estimator on a balanced panel database for the 2001-2018 time period we have found that Romanian people are more prone to emigrate because of climate reasons rather than Polish people.

Growing older and growing apart? Population age structure and trade

PurposeThis paper explores the empirical relationship between population age structure and bilateral trade.Design/methodology/approachThe author includes age structure in both log and Poisson pseudo-maximum likelihood (PPML) formulations of the gravity equation of trade. The author studies relative age effects, using differences in the demographic structure of each country-pair.FindingsThe author finds that a relatively larger share of population in working age increases bilateral exports. This is robust to various estimation models, as well as to changes in the method of specifying the demographic controls. Old-age shares have a negative, but less robustly estimated impact on trade. Estimating instead the balance of trade between trading partners produces similar results, with positive effects of age structure peaking later in working life.Practical implicationsGlobal populations are poised to undergo a massive transition. Trade a crucial way that the demographic deficits of one country may be offset by the dividends of another as comparative advantages shift along with the size and strength of their underlying workforce.Originality/valueThe author’s work is among the first to quantify the effect of relative age structure between two countries and their bilateral trade flows. Focusing on the aggregate flows, relative age shares and PPML estimates of the trade relationship, this paper provides the most comprehensive picture to date on how age structure affects trade.

Exploring the trade facilitation role of Regional Trade Agreements (RTAs): A comparison of BRICS and the Next Eleven economies

The present study assesses the trade facilitating role of regional trade agreements (RTAs) of BRICS and the Next Eleven (N-11) economies using annual bilateral trade over the period 2000–2019. For empirical estimation, we applied structural gravity with Poisson pseudo maximum likelihood estimator. The findings show higher effect of the RTAs for imports compared to exports for both BRICS and the N-11 countries. While the RTAs of BRICS countries mostly facilitate exports of metals, chemical products, plastic and rubber; the RTAs’ role is more pronounced for the exports of animal products, cereals, fruits, vegetable, in addition to labor intensive industries such as textile, footwear, and leather in the N-11 economies. Furthermore, the findings show that the adjustment in the exporting process in response the entry of an FTA is affected by the governance quality prevailing in the source country. In this context, Bangladesh, Egypt, Iran, Nigeria, and Pakistan particularly need to improve governance quality to spur their export performance.