Elasticity of trade flow to trade barriers: A comparison among emerging estimation techniques
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The objective of this study has been to analyze
the sensitivity of trade flow to trade barriers from gravity
equations, using different econometric techniques recently
highlighted in the literature. Specifically, we compare a
benchmark OLS fixed effects specification a la Feenstra
(2002), with three emerging estimation methods: the standard
Heckman correction for selection bias, to account for zero
trade flow; its extension, recently proposed by Helpman et al.
(2008), to control for firm heterogeneity; and, finally, the
Poisson pseudo-maximum-likelihood (PPML) technique to
correct for the presence of heteroskedasticity, first proposed
by Santos Silva and Tenreyro (2006). Our gravity model
includes trade among 211 exporter and 104 importer
countries, in 18 food industry sectors.