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Currency Unions and Trade : a PPML Re-assessment with High-Dimensional Fixed Effects

Title data

Larch, Mario ; Wanner, Joschka ; Yotov, Yoto V. ; Zylkin, Thomas:
Currency Unions and Trade : a PPML Re-assessment with High-Dimensional Fixed Effects.
In: Oxford Bulletin of Economics and Statistics. Vol. 81 (2019) Issue 3 . - pp. 487-510.
ISSN 1468-0084
DOI: https://doi.org/10.1111/obes.12283

Abstract in another language

Recent work on the effects of currency unions (CUs) on trade stresses the importance of using many countries and years in order to obtain reliable estimates. However, for large samples, computational issues associated with the three-way (exporter-time, importer- time, and country pair) fixed effects currently recommended in the gravity literature have heretofore limited the choice of estimator, leaving an important methodological gap. To address this gap, we introduce an iterative poisson pseudo-maximum likelihood (PPML) estimation procedure that facilitates the inclusion of these fixed effects for large data sets and also allows for correlated errors across countries and time. When applied to a compre- hensive sample with more than 200 countries trading over 65 years, these innovations flip the conclusions of an otherwise rigorously specified linear model. Most importantly, our estimates for both the overall CU effect and the Euro effect specifically are economically small and statistically insignificant. We also document that linear and PPML estimates of the Euro effect increasingly diverge as the sample size grows.

Further data

Item Type: Article in a journal
Refereed: Yes
Subject classification: C13; C23; C15; F14; F15; F33
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Economics > Lehrstuhl Volkswirtschaftslehre VI: Empirische Wirtschaftsforschung > Lehrstuhl für Volkswirtschaftslehre VI: Empirische Wirtschaftsforschung - Univ.-Prof. Dr. Mario Larch
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences > 330 Economics
Date Deposited: 18 Apr 2019 07:03
Last Modified: 18 Apr 2019 07:03
URI: https://eref.uni-bayreuth.de/id/eprint/48700