Gravity model estimation using panel data - is logarithmic transformation advisable?
| Thesis title in Czech: | Odhad gravitační rovnice na panelových datech. Je používání logaritmické transformace vhodným postupem? |
|---|---|
| Thesis title in English: | Gravity model estimation using panel data - is logarithmic transformation advisable? |
| Key words: | Gravitační model obchodu, Poissonova metoda odhadu, Panelová data |
| English key words: | Gravity model of trade; Poission estimation; Panel data |
| Academic year of topic announcement: | 2011/2012 |
| Thesis type: | diploma thesis |
| Thesis language: | angličtina |
| Department: | Institute of Economic Studies (23-IES) |
| Supervisor: | doc. Ing. Vladimír Benáček, CSc. |
| Author: | hidden - assigned by the advisor |
| Date of registration: | 10.01.2012 |
| Date of assignment: | 10.01.2012 |
| Date and time of defence: | 02.02.2012 00:00 |
| Venue of defence: | IES, Opletalova 26 |
| Date of electronic submission: | 30.01.2012 |
| Date of proceeded defence: | 02.02.2012 |
| Opponents: | doc. PhDr. Jozef Baruník, Ph.D. |
| Guidelines |
| Držet se následujícího konspektu hypotéz:
Prove theoretically that: 1. The Poisson panel data estimations provide better results from the econometric point of view. 2. The Poisson panel data estimations provide better results from the gravity equation theoretical point of view. Confirm by empirical econometric tests that: 3. The Poisson panel data estimations fit better the data using the panel data for trade of in at least one of these: Germany, Czech Republic. |
| References |
| Santos Silva, J.M.C. and Tenreyro, Silvana (2006), The Log of Gravity, The Review of Economics and Statistics, 88(4), pp. 641-658
Santos Silva, J.M.C. & Tenreyro, Silvana (2011), Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator, Economics Letters, Elsevier, vol. 112(2), pages 220-222, August Westerlund J. and Wilhelmsson F. (2007), Estimating the gravity model without gravity using panel data, .Mimeo School of Economics and Management, Lund University. |
| Preliminary scope of work |
| The majority of empirical literature uses the logarithmic transformation of gravity equation for its estimation. Silva and Tenreyro (2006) point out that in the presence of heteroskedasticity is the OLS estimation based on this transformation inconsistent. Moreover, the transformation cannot deal with zero trade observation. They suggest estimating the equation in multiplicative form using Poisson pseudo-maximum likelihood estimation (PPMLE). Westrelund and Wilhelmsson (2007) discuss further the problem of logarithmic transformation when panel data are used. They also conclude that the Poisson estimation is advisable; they concretely suggest estimating the gravity equation by Poisson fixed effects estimation.
The thesis will discuss the problem of logarithmic transformation of gravity equation in detail. Using real data; it will compare the results of standard and Poisson panel data estimations (random effects and different types of fixed effects). It will focus on the gravity equation theory, consistency of estimation or fitted values. Methodology: Perform various panel data estimation technique to estimate the gravity equation using German trade data. Focus on clustered pooled OLS; one way and two way random effects and fixed effects (classical and LSDV). All of these techniques will be performed as standard and Poisson estimation. To compare the models, run e.g. some specification tests or estimate the fitted values. Outline: 1. Introduction and motivation 2. Literature overview 3. Gravity Model – Theoretical derivation 4. Problems of Logarithmic Transformation and Poisson Estimation 5. Empirical Analysis 6. Conclusion |
| Preliminary scope of work in English |
| The majority of empirical literature uses the logarithmic transformation of gravity equation for its estimation. Silva and Tenreyro (2006) point out that in the presence of heteroskedasticity is the OLS estimation based on this transformation inconsistent. Moreover, the transformation cannot deal with zero trade observation. They suggest estimating the equation in multiplicative form using Poisson pseudo-maximum likelihood estimation (PPMLE). Westrelund and Wilhelmsson (2007) discuss further the problem of logarithmic transformation when panel data are used. They also conclude that the Poisson estimation is advisable; they concretely suggest estimating the gravity equation by Poisson fixed effects estimation.
The thesis will discuss the problem of logarithmic transformation of gravity equation in detail. Using real data; it will compare the results of standard and Poisson panel data estimations (random effects and different types of fixed effects). It will focus on the gravity equation theory, consistency of estimation or fitted values. Methodology: Perform various panel data estimation technique to estimate the gravity equation using German trade data. Focus on clustered pooled OLS; one way and two way random effects and fixed effects (classical and LSDV). All of these techniques will be performed as standard and Poisson estimation. To compare the models, run e.g. some specification tests or estimate the fitted values. Outline: 1. Introduction and motivation 2. Literature overview 3. Gravity Model – Theoretical derivation 4. Problems of Logarithmic Transformation and Poisson Estimation 5. Empirical Analysis 6. Conclusion |