New Approach to Estimating Gravity Models with Heteroscedasticity and Zero Trade Values

Mnasri, Ayman; Nechi, Salem

doi:10.2139/ssrn.3367440

Cited by 7 publications

(4 citation statements)

References 26 publications

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“…This interpretation may not match the expectations of the altruistic/self‐interest remittances theory of McCracken et al ( 2017 ), which predicts remittances based on income differentials and remittances costs. In addition, as argued in the literature (see, e.g., Mnasri & Nechi, 2019 ), using the log‐linearized model could lead to biased results related to Jensen's inequality, which implies that the expected value of the logarithm of a random variable is not the same as the logarithm of the expected value of the same variable.…”

Section: Data and Empirical Strategymentioning

confidence: 99%

“…The PPML estimator also accounts for zero values in bilateral remittances. That is, if we censor the data to keep only positive observations (as were the case in a log‐log gravity specification), we might have a selection bias problem if the chance of having zero bilateral remittances increases when the potential for remitting between two countries is low, as Mnasri and Nechi ( 2019 ) and Head and Mayer ( 2014 ), among others, explained in the case of trade flows. Furthermore, considering the dependent variable in the form log (1 + x ) is also not a good option since there could be a misspecification in the estimated model since it interprets zero bilateral remittances flows as an absence of potential for remitting from one country to another.…”

Section: Data and Empirical Strategymentioning

confidence: 99%

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The impact of COVID‐19 government responses on remittances in Latin American countries

Silva

Pavez

Martínez‐Zarzoso

et al. 2021

J of Intl Development

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Workers' remittances declined sharply as the COVID‐19 pandemic spread in the first half of 2020, rebounding in the second half. This paper analyses the impact of containment and economic support measures on remittances sent to Latin America during 2019–2020 using a gravity model estimated with the Poisson pseudo‐maximum likelihood estimator (PPML). Results show that containment measures in receiving countries mainly explain the fall in remittance flows, whereas the effect of economic support measures is not robust. Among the traditional explanatory factors, the business cycle and the real exchange rate in receiving countries explain the subsequent recovery of remittances.

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Section: Data and Empirical Strategymentioning

confidence: 99%

Section: Data and Empirical Strategymentioning

confidence: 99%

The impact of COVID‐19 government responses on remittances in Latin American countries

Silva

Pavez

Martínez‐Zarzoso

et al. 2021

J of Intl Development

View full text Add to dashboard Cite

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“…They argued that the equation for gravity in its additive structure can potentially be calculated by employing a Poisson Pseudo Maximum Likelihood (PPML) estimation technique, which naturally includes zero observations. The PPML structure is an improved version of the Generalized Nonlinear Linear Model (GNLM) structure that is resilient to multiple types of heteroscedasticity and surpasses the inefficiency problem, providing consistent estimates of the original nonlinear model (Mnasri and Nechi, 2019).…”

Section: Gravity Modelmentioning

confidence: 99%

Tax and International Trade in the SADC Region:A Panel Gravity Model Approach

Joalane,

Denis

2023

IJEBA

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Purpose:The study intends to investigate the effect of taxation on bilateral trade in the Southern African Development Community region. It is motivated by the on-going reviews of tax rates in the frame of the SADC regional integration. Design/Approach/Methodology: This paper further employs the Poisson pseudo maximum likelihood with high dimensional fixed effects (PPMLHDFE) to ascertain the objective, which caters for multilateral resistance and ensures the accuracy and validity of the results for a time spanning from 2012 to 2018. Findings: The results show that during the period of the analysis, import tax for exporting countries significantly increases bilateral trade, while export tax for exporting countries increases bilateral trade, and significantly reduces bilateral trade for importing countries in the region. International trade tax for exporting countries significantly reduces bilateral trade. Practical Implications: Authorities should formulate a more effective and rational approach to taxation, such as increasing their tax net and downward revision tax rates for struggling companies, so that taxes do not become a hindrance, but rather, a pivotal determinant of trade, growth, and development in the region. Originality/Value: This paper is unique because it is the first to examine and understand the impact of taxation (import tax, export tax and international trade tax) on bilateral trade in the SADC region, employing the standard Poisson Pseudo Maximum Likelihood gravity model approach, which accommodates heteroskedasticity and zero trade flows.

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“…The gravity framework has become so popular that it has been leading the trade flow literature for a long time under concepts of “static” gravity in the past and “dynamic” gravity in recent time (Koo et al 1994; Anderson and Marcouiller, 2002; Rose, 2005; Hattari and Rajon, 2009; Kabir and Salim, 2010; Yu, 2010). This third kind of literature uses an augmented gravity equation with trade-facilitating factors as well as a trade-obstructing factor in the same equation (Srivastava and Green, 1986; Cyrus, 2002; Dixon and Moon, 1993; Marrow and Tabares, 1998; Groot et al , 2004; Linders et al , 2005; Levchenko, 2007; Martin et al 2008; Fratianni, 2009; Gourdon, 2009; Dutt and Traca, 2010; Musila and Sigue, 2010; Horsewood and Voicu, 2012; Zelekha and Sharabi, 2012; Ali and Mdhillat, 2015; Galkin et al 2018; Devadason et al 2018; Mnasri and Nechi, 2019; Wu et al , 2016; Baier et al 2017; Aziz et al 2018; Hasiner and Yu, 2019; Saputra, 2019).…”

Section: Literature Reviewmentioning

confidence: 99%

Does political risk lower bilateral trade flow? A gravity panel framework for Thailand vis-à-vis her trading partners

Goswami

Panthamit

2020

IJOEM

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PurposePolitical risk factors play a pivotal role in determining the bilateral trade flow of Asian countries in general and the Association for Southeast Asian Nations (ASEAN) countries in particular. The main purpose of this research paper is to examine the impact of disaggregated political risk in lowering the bilateral trade flow of Thailand, a prominent member of ASEAN, vis-à-vis her 132 trading partners.Design/methodology/approachUsing panel data of Thailand with her partner countries for the period 1984–2015, this paper uses four different panel specifications named pooled ordinary least squares and random effects estimations (estimated generalized least squares estimation) of three types by controlling for cross-sectional heteroscedasticity, time-wise heteroscedasticity and contemporaneous correlation.FindingsHolding other gravity-based determinants constant, for one unit increase in the ranking of indicator of military in politics at home and abroad, trade flow decreases by 5–9% of the total trade flow of Thailand per year. For other types of political risks like government instability at home and abroad, difficulties in investment profile at home and abroad and internal and external conflict at home and abroad, the decrease is also substantial and most statistically significant. The magnitude of loss due to the military channel at home and abroad can amount to US$9.38–US$16.88 bn per year for Thailand, after controlling for other gravity variables.Research limitations/implicationsThe reasons for risk originating from different political channels could be explored at the regional or global level to understand their global and local dimensions.Practical implicationsPolicymakers should attempt to resolve the political risks at home and abroad in an amicable manner, through dialogue, so that bilateral trade flow is not inhibited.Social implicationsBy taking economic reforms only, the trading problem cannot be resolved until and unless Thailand involves her society, politics and administrative mechanisms in a conducive manner to facilitate her trade. A dialogue among bureaucracy, political authority and military is beneficial in mitigating political risks.Originality/valueThe paper is unique in the sense that it makes a solid attempt to identify the potential channels of disaggregated political risk in affecting trade flow negatively, in a gravity framework, by controlling for different kinds of error structure.

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New Approach to Estimating Gravity Models with Heteroscedasticity and Zero Trade Values

Cited by 7 publications

References 26 publications

The impact of COVID‐19 government responses on remittances in Latin American countries

The impact of COVID‐19 government responses on remittances in Latin American countries

Tax and International Trade in the SADC Region:A Panel Gravity Model Approach

Does political risk lower bilateral trade flow? A gravity panel framework for Thailand vis-à-vis her trading partners

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