Poisson Pseudo Maximum Likelihood Research Articles

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.

The effect of airport efficiency on air traffic, using DEA and multilateral resistance terms gravity models

This study evaluates the bias-corrected airport efficiency by employing a slacks-based measurement-data envelopment analysis model with a bootstrapping technique. The impacts of airport efficiency on bilateral passenger traffic and freight volume are then assessed by developing a novel robust gravity model incorporating multilateral resistance (MR) terms and the Poisson pseudo maximum likelihood (PPML) method to address heteroscedasticity. We collected air route data using Incheon airport with a sample of 50 airports in 28 countries for 2006–2015. The results from all the applied models revealed a significant and positive effect of airport efficiency on passenger traffic and freight volume.

The impact of the brexit referendum on greenfield foreign direct investments from countries within and outside the European single market

ABSTRACT We use a Poisson Pseudo Maximum Likelihood (PPML) specification to investigate whether the number of greenfield foreign direct investments (GFDIs) announcements in the UK decreased from the referendum year and, if so, whether the decrease is more pronounced for announcements made by investors outside the European Single Market (ESM) than for those by investors within the ESM. In this context, we argue that increased uncertainty about the UK’s future economic relationship with EU began early in the referendum year and affected investors outside the ESM more than investors inside the ESM. One possible reason for this heterogeneity could be, among others, that not following the ‘Norwegian Model’ after the implementation of the withdrawal agreement poses a greater threat to them, since they tend to use the UK more often as an export platform. For the analysis, we use data from fDi Markets, the World Bank and the Tax Foundation, which contain information on 185 countries from 2005 to 2019. The results obtained support our hypotheses and are robust to model specifications.

Assessing the effects of hard and soft infrastructure on traditional vs supply-chain trade: the case of Central and Eastern EU member states (CEMS)

ABSTRACT The aim of this paper is to assess the role of hard and soft infrastructure in trade, distinguishing between traditional trade and supply-chain trade. Using factor analysis, we construct four aggregate trade facilitation indicators where we measure hard infrastructure as physical and ICT infrastructure, while soft infrastructure accounts for border efficiency and institutional efficiency. For traditional trade, we use bilateral trade data from UN Comtrade. Supply-chain trade is measured in terms of domestic value-added (DVAFX) embodied in foreign gross exports and foreign value-added (FVA) embodied in domestic gross exports obtained from Eora MRIO database. We use panel data regression analysis with an empirical model specification based on a gravity model and covering the 2000–2019 period. We estimate model with the Poisson Pseudo-Maximum Likelihood Estimator (PPML). To control multilateral trade-resistance terms (MRT), we included reporter and partner fixed effects along with country pair fixed effects. The results confirm a statistically significant relationship between hard and soft infrastructure and trade. ICT and border efficiency have the strongest impact on both types of trade. Supply-chain trade responds most intensely to improvements in institutional efficiency. Results imply that ICT infrastructure and border efficiency might hold even greater importance for CEMS’s traditional and supply-chain trade.

Export Competence of Cultural Goods: A Structural Gravity Analysis of the BRICS Trade

The BRICS economies contribute a substantial portion of global trade. However, the share of cultural export in their total exports has been declining over the past two decades. In this context, the current study examines cultural exports of BRICS compared to their aggregate exports using structural gravity model. For empirical estimation, we apply Poisson Pseudo-Maximum Likelihood High Dimensional Fixed Effects (PPMLHDFE) estimator for annual bilateral exports data. The results show that, as compared to non-cultural aggregate exports, exports of creative industries are more sensitive to geographical distance between countries. Nevertheless, positive effect of the similarity between trading partners in terms of language commonality, colonial relationship and shared border is more pronounced in case of cultural exports. Furthermore, we find that while the regional trade agreements promote exports in general, they remain inconsequential in case of cultural exports of BRICS. Additionally, the study uses cultural exports as a proxy for cultural proximity and finds that bilateral cultural exports facilitate the exports of non-cultural exports.

How much to invest for house purchase? The consumer purchase intention perspective of real estate investment decision

PurposeThis study is based on the consumer purchase intention (CPI) in real estate. The purpose of this study is to investigate the link between CPI and preferred individual investment capacity in buying real estate properties. This study investigates if commonly known factors of CPI such as attitude, social power or subjective norms, perceived behavior power or control, location, surrounding environment and socialization can influence a consumer’s preferred investment amount when buying a house, either for own use or for rental purpose.Design/methodology/approachA total of 334 respondents participated in this study. The survey data was analyzed using factor analysis technique, ordinary least square technique and Poisson pseudo maximum likelihood technique.FindingsThis study finds that location, surrounding environment, property/construction papers, roads, mosque/temple and fire services significantly influence the preferred investment amount of a real estate investor.Originality/valueThis study suggests that a link exists between CPI and real estate investment decision through factors such as location, surrounding environment, legal documentation and communication facility. These identified CPI factors require serious consideration by the real estate developers and their financing partners.

Understanding the global patterns of Venezuelan migration: determinants of an expanding diaspora

ABSTRACT The economic, political and humanitarian crisis in Venezuela intensified since 2015 and has led to the largest migration crisis in the region’s modern history. In parallel, the composition of the major destination countries has changed fundamentally. This paper investigates the factors determining the choice of destination country of Venezuelan migrants in the pre- and post-2015 period. Exploiting the United Nations migration dataset (for 230 countries from 1990 to 2017), we apply a Poisson Pseudo-Maximum Likelihood (PPML) estimator to a modified gravity model of migration. The results suggest that Venezuelans were generally choosing a certain destination country based on economic criteria in times of relative stability (1990 to 2015). However, this determinant loses its importance during times of crisis (2015 to 2017), when Venezuelans were primarily immigrating to geographically proximate nations. Consistently for both periods Venezuelans appear to migrate in larger numbers to destinations with an already established network of compatriots.

Evaluation of the Impact of Regional Trade Agreements on Indian Exports

This article scrutinises the repercussion of the regional trade agreements on Indian exports. The gravity model has been used for the analysis of two decades of panel data from 30 countries, spanning from 2001 to 2019. The gravity equation is estimated by the Ordinary Least Square (OLS) and Poisson pseudo-maximum likelihood (PPML) techniques using panel data regression. The PPML approach addresses the heteroskedasticity bias that is typically present in the OLS method. The study has revealed that the PPML results are more encouraging than those obtained based on the traditional OLS approach. According to the empirical findings, India’s trading partners in South Asia benefit more from its economic integration than India does. However, the measurement of country-specific degrees of globalisation has a negligible effect on fostering trade across select nations. JEL Codes: C1, F1, F2, F6

Does agricultural official development assistance facilitate foreign direct investment in agriculture: Evidence from 63 developing countries

AbstractAlthough past studies have separately explored the direct impact of agriculture official development assistance (ODA) and foreign development investment (FDI) on agricultural production, the nexus between these two elements is often neglected. This article aims to understand the linkage between agricultural ODA and FDI, using data from 63 developing countries from 1991 to 2019. Poisson pseudo maximum likelihood estimations reveal that agricultural ODA considerably promotes FDI in the agriculture, fishery and forestry sectors (FDI_aff) by approximately 0.5%, while its impact on FDI in the food, beverages and tobacco industries (FDI_fbt) is overall insignificant. Geographical and ecological conditions play a decisive role in accounting for FDI in agriculture. While coastal and land‐rich countries receive a significantly higher amount of FDI_aff and FDI_fbt, tropical countries are evidently more attractive destinations for FDI_fbt. The empirical analysis also shows that a peaceful social environment encourages FDI_aff. Well‐established legal systems and reductions in corruption facilitate FDI_aff, whereas the impact of overall institutional quality on agricultural FDI is insignificant. Results suggest that donors prioritise agricultural initiatives with higher positive spillover effects, such as programmes supporting food crop production and agricultural research.

The nonlinear effects of air pollution on criminal behavior: evidence from Mexico City and New York

This article proposes an inverted U-shape relationship between air pollution and criminal behavior. Exposure increases criminality by raising criminals’ taste for risk and violent behavior while also reducing it by changing the number of felons and crime opportunities in the market through exacerbated morbidity and avoidance behavior. I illustrate both mechanisms with an expected utility model of the decision to delict and a simplified search and matching frictions model between criminals and crime opportunities. Linear, quadratic, and nonparametric Poisson pseudo-maximum likelihood estimator panel models confirm this bell-shaped relationship for Mexico City and New York, suggesting that the linear association between pollution and criminality uncovered by late studies may be better estimated with nonlinear models.

Determinants of commuting flows in Germany

The paper studies commuting flows between German regions. Using panel data of 400 German regions from 2013 to 2019 we evaluate the effect of the wide range of indicators determining the magnitude of the commuting flows: demographic factors, indicators of the labour and real estate markets, welfare variables, social and educational system characteristics, etc. We employ the gravity model analysis with Poisson Pseudo Maximum Likelihood, allowing us to consider even the absence of commuters between regions. The novelty of the research is that the full structure of commuting flows, including the direction, is analyzed at the aggregated district level. In addition to other papers devoted to the economics of the labor market and focused mostly on individual data and selected determinants, we investigate a wide range of possible factors and conclude that the main macroeconomic factors determining both the intensity and direction of commuting flows: population, unemployment rate, cost of leasing housing and the number of companies per 10000 people. We also find that commuting flows between regions in the same land are 202% higher than between regions from different lands, and commuting flows between neighbouring regions are 414.5% higher than between regions without a common border.

Defending the nation, securing the economy

Literature on the effects of military expenses and GDP is mixed, although a significant body of research supports the hypothesis that military expenses positively impact GDP. To contribute to the literature, this article analyses whether military expenditures influenced GDP in 27 European Union member countries from 1998 to 2021 by studying two clusters specific to the analysed countries: NATO and non-NATO countries. The way in which military expenditures affect GDP has been analysed using both the classic static models for panel data (pooled OLS, fixed effects, random effects, feasible generalized least squares, panel corrected standard errors, Poisson pseudomaximum likelihood regression) as well as by applying dynamic panel model system GMM, reverse causality, and half-panel jackknife regression models, with unemployment and inflation selected as control variables. The findings indicate that the current values of military expenditures positively influence GDP in both clusters, while past values of military expenditures positively influence GDP in the NATO EU countries and negatively affect GDP in the non-NATO EU countries. There are several key differences between NATO EU members and non-NATO EU members, particularly in regard to their security commitments and defence spending. NATO members are part of a mutual defence pact, agreeing to the principle of collective defence, which also impacts public defence policies and public budgets. This paper offers practical value to policymakers, stakeholders, and academicians. In addition, it has two significant political implications. First, it highlights the role of military expenditures as a catalyst for economic growth but does not underestimate the dangers of using military spending as a pretext to stimulate employment. Second, it establishes the optimal proportion of military expenditures required to fulfil two essential targets of national and European policies – security and welfare.

Uloga bilateralnih investicionih sporazuma u podsticanju internacionalizacije preduzeća u Srbiji

Bilateral investment treaties are traditionally considered to be an instrument for attracting foreign direct investment in Serbia. However, their provisions may also support the internationalization of its enterprises. In this paper, we explore how effective bilateral investment treaties are in promoting the most challenging aspect of the internationalization of enterprises in Serbia -foreign direct investment outflows. Additionally, we investigate the role of other main motivations for the investment outflows. We conduct our analysis by estimating a gravity model using the panel data on Serbia and its 147 partner economies, observed in the period between 2011 and 2019. The gravity model was estimated using the Poisson pseudo-maximum likelihood estimator. We find that bilateral investment treaties have a statistically significant positive effect on bilateral foreign direct investment outflows. Furthermore, the outflows are particularly affected by the treaties containing higher anti-discrimination standards and providing a more liberal investment regime. Unilateral liberalization of the host countries' investment regime is also found to be positively associated with the investment outflows, whereas both the geographic and psychic distances have negative effects. Market-seeking motives of the internationalizing enterprises in Serbia are revealed to be the dominant driver of the investment. The results provide useful implications for the policymakers aiming to support the internationalizing efforts of the enterprises and the consequent improvement of the international competitiveness of Serbian economy.

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.