Poisson Pseudo Maximum Likelihood Research Articles

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

The effect of technological intensity on international trade

This paper aims to show the impact of technological intensity (R&D intensity) on trade. Using a detailed product-level dataset of 118 countries from 1988 to 2006 and the Poisson pseudo-maximum-likelihood (PPML) estimator, this paper provides robust evidence that technological intensity promotes exports mainly through increasing the variety of exports. More specifically, a 1-percentage point increase in the country’s technological intensity promotes the variety of exported products by around 0.12% on average across all 15 sectors. In addition, total exports and the variety of exported products increase are higher in technology-intensive sectors.

The Role of Trade Agreements in Trade Creation or Trade Diversion: A Case of Pakistan

International Trade agreements are the source of trade creation or trade diversion. In the case of trade creation, it helps to rapid, sustainable economic development. This study assesses the trade creation and diversion effect for the notified trade agreements of Pakistan. This manuscript is based on an augmented gravity model with robust theoretical multilateral resistance terms. The model analyzes the impacts of trade agreements by using panel data over a period from 1962 to 2020. Making use of Poisson Pseudo maximum likelihood (PPML) family models with fixed effects, time-specific and dummy variables, it removes the issues of Jensen’s inequality E(lnXij ) ≠ lnE(Xij), heteroscedasticity, and zero-trade errors. This study's outcomes confirm that the trade agreements of Pakistan positively impact trade and exports. It can be concluded from this study that notified trade agreements of Pakistan are a source of trade creation. It further suggests that Pakistan should continue to pursue trade agreements with countries with complementary economies and focus on previously signed mutual agreements that are still not in force.

The effect of research intensity on total factor productivity in OECD countries during 1890–2018: evidence from a new Poisson pseudo maximum likelihood estimation approach

The effect of research intensity on total factor productivity in OECD countries during 1890–2018: evidence from a new Poisson pseudo maximum likelihood estimation approach

India’s trade with South and Central Asia: an application of institution-based augmented gravity model

The present study investigates the effect of regional and bilateral trade agreements supported by institutional framework on bilateral trade between India and selected South and Central Asian countries. The augmented gravity model that corrects for zero trade, endogeneity and heterogeneity is used. The model is developed by applying OLS and PPML (Poisson pseudo-maximum likelihood) estimation technique using panel dataset of 22 countries from 1996 to 2020. Empirical results show that trade agreements have failed to enhance trade between selected countries. However, institutional framework positively contributes to trade integration among these countries. The key finding of this study is that regional trade agreements supported by institutional framework play an important role in promotion of trade among these countries. Thus, the government needs to pay attention to enhance institutional quality to reap the benefits of trade integration.

Intensive and extensive margins of India's agricultural trade: implications for export diversification and development

PurposeThis paper aims to analyze relative contribution of intensive margin (IM) and extensive margin (EM) to growth in India's agricultural exports for the period 2001 to 2020. It also analyses the determinants of IM and EMs through a standard gravity model.Design/methodology/approachThe study uses export data from United Nations Comtrade, which is accessed through World Integrated Trade Solution (WITS) software. Data for the period 2001 to 2020 were compiled for analysis using the Harmonized System (HS) of commodity classification system at the six-digit level. This study decomposed the contribution of IM and EM in the growth of Indian agricultural trade by using Hummels and Klenow's approach. After performing the export decomposition analysis, the authors analyze the factors influencing IM and EM by using the Tobit regression model and Poisson pseudo-maximum-likelihood (PPML) method of estimation.FindingsThe EM grew at 1.24% per annum, while the intensive margin (IM) increased by 0.23%. The contribution of growth at the EM increased from 58.8% in 2001 to 70.2% in 2020. Export growth along the IM was relatively high for animal products and agricultural raw materials, while growth at the EM was an important contributor to the export growth of horticultural and processed agricultural products. There was a positive and significant effect of the free trade agreement (FTA) on export margins.Research limitations/implicationsMore disaggregated commodity-specific studies on value chain analysis would provide valuable insights into the issues hindering exports and realizing the untapped export potential.Originality/valueThere is a scarcity of holistic and recent studies illustrating the role of IM and EMs in agricultural trade growth, covering a large number of commodities and geographies associated with Indian agricultural trade. The study would be helpful to the stakeholders in facilitating informed policy decisions.

Effect of the East African Community Common External Tariff on Household Labor Income in Kenya

This study investigates how changes in prices caused by the adoption of the East African Community Common External Tariff affected the labor incomes of households in Kenya. Households in rural, urban, and fully urban areas are analyzed. Workers are classified as skilled versus unskilled, formal versus informal, and agricultural versus non-agricultural sector workers. Data from the Kenya Integrated Household Budget Surveys 2005/2006 and 2015/2016 are used in the analysis. Data from these surveys were used to categorize workers and extract the price values for commodities. One hundred and twenty-one commodities classified as agricultural or manufactured goods are analyzed. Much of the reduction in import tariffs and hence reduction in commodity prices is on manufactured goods. A Mincerian wage equation that is corrected for survey design and heteroskedasticity is estimated. Further, a sensitivity analysis using a Poisson Pseudo Maximum Likelihood model is estimated. The price-labor income effect is observed to vary with the classification of workers in the country. Skilled, formal, and non-agricultural workers gained compared to their counterparts. Workers in counties that border the EAC countries and those in the major cities in the country gained more than other workers in other counties in the country. However, in all parts where gains are experienced, the magnitude is small. This shows that generally, the Common External Tariff did not have a very significant effect on labor incomes in Kenya.

The OIC's Intra-Bloc and Extra-Bloc Trade: How Effective are the FTAs?

The present study evaluates the role of Free Trade Agreements (FTAs) in facilitating trade for the Organization of Islamic Cooperation (OIC) member countries. We used the structural gravity model and the Poisson pseudo-maximum likelihood estimator to examine annual bilateral trade from 2000 to 2019. We find that FTAs have a positive impact, which is more pronounced in the case of the intra-OIC trade. Furthermore, the findings show that the quality of governance in the source country influences the adjustment of the exporting process in response to the entry of an FTA. The majority of OIC countries currently have poor governance. Therefore, improving the governance conditions would encourage trade, particularly for the extra-bloc exports.

Cultural proximity and cross‐border banking flows

AbstractThis paper disentangles the impacts of cultural proximity on cross‐border banking flows, using large country‐pair data from 1996 to 2019. On applying the gravity model with the Poisson Pseudo Maximum Likelihood estimator, our main findings show that cultural proximity is both a push and pull factor, which robustly anticipates increased outflows (cross‐border lending) and inflows (cross‐border borrowing). The impacts of cultural proximity are transmitted throughout the information asymmetry and cost reduction channels. These impacts become pronounced for geographically proximate country pairs and hold for a different measure of cultural goods taxonomy and for controlling the endogeneity problem.

The Effects of Dispute Settlement Body of The World Trade Organization on International Trade

This study examines the effects of the Dispute Settlement Body (DSB), a sub-unit of the World Trade Organization (WTO) that acts as a global umbrella in economic integrations, on both world trade and the foreign trade of some selected countries. This study introduces a new explanatory variable (DISPUTE) in the literature by analyzing the data from the use of the DSB by the WTO’s member countries from 1995 to 2018. This variable was modeled using the gravity model and the Poisson Pseudo Maximum Likelihood estimator (PPML). As a result of analysis, the DSB positively affects world trade, that is, the WTO contributes to the increasing world trade. The use of this mechanism by the trade partners of the selected countries affects these countries’ exports and imports in different ways. As another important result, contrary to expectations, the use of this mechanism by the trade partners of developed economies, which have been accused of lobbying in the WTO, does not affect the foreign trade of developed economies positively.

The effect of non-tariff measures (NTMS) on Indonesian pulp and paper exports

<span lang="EN-US">Non-Tariff Measures (NTMs) are likely applied by some major trading countries. The NTM policy mostly applies Sanitary and Phytosanitary (SPS) and Technical Barrier to Trade (TBT). Pulp and Paper commodities are some of Indonesia’s potential exports facing NTM barriers by a number of major destinations countries. This study is aimed to evaluate the effects of NTMs upon Indonesian pulp and paper export in the main destinations. NTMs are represented by coverage ratio of SPS and coverage ratio of TBT. The effect of NTMs imposition to pulp and paper between Indonesia and its main trade partners is estimated by using a panel data gravity model that is constructed by disaggregated data on bilateral export trade flow of pulp and paper between Indonesia and its main trade partners for the period from 2005 to 2019. The gravity model is estimated by a fixed effects model, Poisson Pseudo Maximum Likelihood, and Hausman Taylor model. The results indicated that the imposition of SPS and TBT of destination countries presented a positive and significant impact upon the Indonesian export of pulp. However, the imposition of SPS and TBT of destination countries presented a negative and significant impact upon the Indonesian export of paper.</span>

Population, Institutions, and Violent Conflicts – How Important is Population Pressure in Violent Resource-Based Conflicts?

Abstract This paper examines the moderating role of institutions in explaining the effects of population density, income, and high-valued natural resources (oil) on violent conflict events. Panel-Corrected Standard Errors and Poisson Pseudo Maximum Likelihood estimators were applied. Results show that population density beyond 2293 persons per square kilometre increases violent conflict events. Further, institutional quality has a moderating effect on violent conflict events – stronger corruption control reduces the positive effect of significant oil production on violent conflict events and weakens the negative effect of per capita income on such events. The results suggest that reducing violent conflict events requires at least three things; (1) keeping population density below 2293 persons per square kilometre, (2) investing in institutional quality improvements, and (3) raising incomes.

Determinants of dried fruit products sector export: A gravity model for Türkiye

Agriculture contributes to economic development as well as meeting the basic nutritional needs of a society. The dried fruits and dried fruit products industry is one of the leading industries contributing to the national economy and forms a significant part of the agricultural industry. This study investigates the determinants of Türkiye's exports of dried fruits and dried fruit products using the gravity model. In this context, the data for the 2005-2021 period for 78 countries importing dried fruits and dried fruit products from Türkiye were analyzed using the Poisson Pseudo Maximum Likelihood estimator (PPML). The analysis revealed that the GDP of Türkiye and the importing country, nominal exchange rate, EU membership of the importing country, the availability of a free trade agreement with the importing country and the average surface temperature changes, positively impact Türkiye's exports of dried fruits and dried fruit products. Whereas the distance between countries, which is a good indicator for transportation costs, negatively affects Türkiye's exports of dried fruits and dried fruit products. The results of the analyses show that exports of dried fruits and products exhibit similar results to that of exports of agricultural products. Additionally, the gravity model for exports of dried fruits and dried fruit products is valid for Türkiye.

Unrealized opportunities: Exploring Russia’s untapped OFDI potentials amidst economic sanctions

The economic sanctions imposed by the United States, Europe, and other countries since 2014 have heightened the unpredictability and turbulence in the business environment for Russian firms, necessitating exploration of new international partners and transformation of economic relationships. This paper aims to examine the redirection of Russian outward foreign­ direct investment (OFDI) in the context of these economic sanctions, particularly those intensified since 2022. The analysis employs an estimated econometric model to compare actual and potential levels of OFDI, utilizing a comprehensive database covering 74 origin and 102 destination countries from 2010 to 2019. The estimation technique employs Poisson pseudo-maximum likelihood approaches. The findings indicate that Russian firms demonstrated underinvestment in most regions, except for Northern and Western Europe, during the examined period. The 2014 sanctions resulted in a significant decline in Russian OFDI to the countries imposing sanctions, while there was an increase in OFDI to Asia, the Middle East, and the CIS countries. As anticipated, the 2022 sanctions exerted additional pressure on Russian OFDI, leading to a further shift of their outflows towards Asia and the Middle East, which, however, could not compensate for the sharp decline in OFDI to the EU countries and North America. The results highlight the existence of untapped OFDI potential for Russia in African and Latin American countries as well as in the Middle East. These regions emerge as desirable partners for bilateral economic liberalization. From a policy perspective, the findings emphasize the importance for the Russian Federation to pursue deep trade agreements that encompass investment preferences, public procurement, and the protection of intellectual property rights with regions harboring untapped potential for OFDI. Additionally, expanding government support for domestic firms venturing abroad is crucial to sustain and enhance integration into the global economy, especially in the face of sanctions.

Impacts of the COVID lockdown on household incomes: evidence from Punjab, India

In response to the beginnings of the COVID-19 pandemic, India’s government instituted a severe nationwide lockdown in late March 2020. In this paper, we analyze household survey data on income from an Indian state, Punjab. We analyze the impacts of the pandemic and lockdown on total household income, as well as its components, including wages, business income and transfers. This paper innovates in this area by using Poisson Pseudo Maximum Likelihood estimation to deal with the skewed distributions of various income components, as well as quantile regressions to examine differential impacts across the income distribution. We examine the differences between rural and urban households, differential impacts on female-headed and laborer households, and the time pattern of impacts. We find that rural households experienced more persistent income declines than urban households, and their wages suffered relatively more. Households with daily laborers were most badly affected, and this was especially true at the bottom of the income distribution.

Tax effects on foreign direct investment-Just a rerouting.

This paper investigates tax-related determinants of indirect foreign direct investment (FDI). In particular, it studies the effects of bilateral effective average tax rates, the strength of anti-tax avoidance rules in host countries and tax haven status of home countries on the volume of indirect FDI host countries receive. The paper uses the fourth edition of the OECD Benchmark Definition of Foreign Direct Investment (BMD4) database, which distinguishes between ultimate and immediate FDI. Methodologically, the paper relies on the standard gravity equation for FDI and applies the Poisson pseudo-maximum likelihood estimation model. The paper shows that ultimate FDI is not influenced by tax-related factors but only real economic determinants, whereas tax rates affect immediate FDI. This finding suggests that previous research may have overestimated the tax elasticity of FDI, and taxes do not have an impact on location decisions of FDI, but rather the route of investing-direct or indirect. The paper defines indirect FDI as the difference between ultimate and immediate FDI and finds that high bilateral effective average tax rates encourage indirect FDI. The finding is robust under different specifications.

Smart destination competitiveness: underscoring its impact on economic growth

PurposeThe current study is designed to investigate the factors that foster the framing of destination competitiveness and establish the factors that drive the contribution of tourism innovations to economic growth in smart tourism destinations.Design/methodology/approachA four-year panel data were extracted from the World Economic Forum's travel and tourism competitiveness index and data were analysed using Poisson Pseudo Maximum Likelihood regression model.FindingsThe findings demonstrate that both the enabling environment and airport infrastructure significantly affect tourism's impact on the economy of the selected smart European tourism destinations. Conversely, human resources and general infrastructure display a negative correlation with tourism's contribution to the economy. However, no data in the sample support the idea that tourism policies, government prioritization or readiness of tourism information and communication technologies impact tourism's contribution to the economy. Additionally, the marginal effects indicate that improving the enabling environment and airport infrastructure can generate additional benefits for the economy through tourism.Originality/valueThe uniqueness of this study is the integration of smart tourism destinations with the measure of destination competitiveness to provide an empirical bridge that links tourism competitiveness to economic growth.

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.

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.