Instrumental-Variable Estimation Of Exponential Regression Models With Two-Way Fixed Effects With An Application To Gravity Equations
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23 août 2022
- handle: 10670/1.zm0m5j
- hal: hal-03818773
- doi: 10.1002/jae.2932
- WOS: 000850867300001
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info:eu-repo/semantics/altIdentifier/doi/10.1002/jae.2932
info:eu-repo/semantics/OpenAccess
Mots-clés
Bias correction Count data Differencing estimator Endogeneity Fixed effects Gravity equatio Instrumental variable Transitivity.Sujets proches
Earth (Planet)--GravityCiter ce document
Koen Jochmans et al., « Instrumental-Variable Estimation Of Exponential Regression Models With Two-Way Fixed Effects With An Application To Gravity Equations », HAL-SHS : économie et finance, ID : 10.1002/jae.2932
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Résumé
This paper introduces instrumental-variable estimators for exponential-regression models that feature two-way fixed effects. These techniques allow us to develop a theory-consistent approach to the estimation of cross-sectional gravity equations that can accommodate the endogeneity of policy variables. We apply this approach to a data set in which the policy decision of interest is the engagement in a free trade agreement. We explore ways to exploit the transitivity observed in the formation of trade agreements to construct instrumental variables with considerable predictive ability. Within a bilateral model, the use of these instruments has strong theoretical foundations. We obtain point estimates of the partial effect of a preferential-trade agreement on trade volume that range between 20% and 30% and find no statistical evidence of endogeneity.