ppmlhdfe: Fast Poisson Estimation with High-Dimensional Fixed Effects

In this paper we present ppmlhdfe, a new Stata command for estimation of (pseudo) Poisson regression models with multiple high-dimensional fixed effects (HDFE). Estimation is implemented using a modified version of the iteratively reweighted least-squares (IRLS) algorithm that allows for fast estimation in the presence of HDFE. Because the code is built around the reghdfe package, it has similar syntax, supports many of the same functionalities, and benefits from reghdfe's fast convergence properties for computing high-dimensional least squares problems. Performance is further enhanced by some new techniques we introduce for accelerating HDFE-IRLS estimation specifically. ppmlhdfe also implements a novel and more robust approach to check for the existence of (pseudo) maximum likelihood estimates.Comment: For associated code and data repository, see https://github.com/sergiocorreia/ppmlhdf

Essays on International Trade and International Political Economy

My graduate research has been organized around two main themes: (i) the causes and consequences of trade integration and (ii) the strategic nature of armed conflict. The expansion of international trade over the past sixty years has played a major role is determining the fates of nations, both for better and for worse, and likewise has the potential to shape our futures in ways we need to be able to anticipate. Similarly, the death, destruction, and diversion of productive resources associated with violent conflict continue to present a critical obstacle to shared prosperity. The papers I am presenting as the chapters of my dissertation are representative of the contributions I am interested in making in these important research areas. My research on trade integration spans both the micro-level of what forms trade integration may take as well as higher level concerns about how freer trade will affect both the world economy as well as the individual economies within it. Two chapters of my dissertation, "Beyond Tariffs: Quantifying Heterogeneity in the Effects of Free Trade Agreements" and "Finding the Influence of Communication on Trade" are devoted to this subject. In "Beyond Tariffs", for example, I show, using NAFTA as an empirical case study, that the effects of free trade agreements on individual nations may not be what we might expect to observe ex ante based on tariffs. Relying solely on tariffs to project NAFTA’s effects not only greatly underestimates the overall welfare increases for all three NAFTA countries---Mexico's in particular---but also overstates the positive effects of NAFTA on U.S. producer prices. It follows that "heterogeneity" in the effects of free trade agreements, both within and across agreements, may not be well-understood. In "Finding the Influence of Communication", I investigate whether the sharing of a common language promotes trade in a way similar to trade policy and, if so, what the consequences of increased language learning will be for global trade. Most notably, I find the effect of communication in native languages on trade tends to be underestimated in the absence of controls for communication in non-native languages. Surprisingly, while I find strong evidence for the causal impact of foreign language acquisition on manufacturing trade, I do not find similarly strong evidence for services trade. I also find that, unsurprisingly, adding to the world's population of English speakers has by far the largest impact on trade of any major world language. Interestingly, however, when I remove all non-language barriers to trade, I find the forces of geography and history may have greatly impeded the relative appeal of Chinese as a competing global language. The third chapter of my dissertation, "The Problem of Peace: A Story of Corruption, Destruction, and Rebellion", joint with Constantinos Syropoulos, deals with a different kind of question: what are the economic incentives that drive the emergence of destructive conflicts, and of intra-state conflicts ("civil conflicts") in particular? Specifically, we investigate how the central presence of state (fiscal) institutions in civil conflicts generates unique explanations for the emergence of conflict itself. International trade plays an important role in this chapter as well, but mainly as a backdrop for illustrating the unique trade-offs between "peace" and "welfare" that may arise in this context. It is possible for changes in international prices to move in favor of promoting settlements, but such settlements can be associated with (socially wasteful) increases in arming and/or taxation. We also explore, among other things, how limiting the government’s fiscal capacity may tilt the balance towards peaceful settlement.Ph.D., Economics -- Drexel University, 201

Fast Poisson Estimation with High-Dimensional Fixed Effects

In this paper we present ppmlhdfe, a new Stata command for estimation of (pseudo) Poisson regression models with multiple high-dimensional fixed effects (HDFE). Estimation is implemented using a modified version of the iteratively reweighted least-squares (IRLS) algorithm that allows for fast estimation in the presence of HDFE. Because the code is built around the reghdfe package, it has similar syntax, supports many of the same functionalities, and benefits from reghdfe’s fast convergence properties for computing high-dimensional least squares problems. Performance is further enhanced by some new techniques we introduce for accelerating HDFE-IRLS estimation specifically ppmlhdfe also implements a novel and more robust approach to check for the existence of (pseudo) maximum likelihood estimates

On the Widely Differing Effects of Free Trade Agreements: Lessons from Twenty Years of Trade Integration

We develop a novel two stage methodology that allows us to study the empirical determinants of the ex post effects of past free trade agreements (FTAs) as well as obtain ex ante predictions for the effects of future FTAs. We first identify 908 unique estimates of the effects of FTAs on different trading pairs for the years 1986-2006. We then employ these estimates as our dependent variable in a “second stage” analysis characterizing the heterogeneity in these effects. Interestingly, most of this heterogeneity (∼ 2/3) occurs within FTAs (rather than across different FTAs), with asymmetric effects within pairs (on exports vs. imports) also playing an important role. Our second stage analysis provides several intuitive explanations behind these variations. Even within the same agreement, FTA effects are weaker for more distant pairs and for pairs with otherwise high levels of ex ante trade frictions. The effects of new FTAs are similarly weaker for pairs with existing agreements already in place. In addition, we are able to relate asymmetries in FTA effects to each country’s ability to influence the other’s terms of trade. Out-of-sample predictions incorporating these insights enable us to predict direction-specific effects of future FTAs between any pair of countries. A simulation of the general equilibrium effects of TTIP demonstrates the significance of our methods

On the Widely Differing Effects of Free Trade Agreements: Lessons from Twenty Years of Trade Integration

We develop a novel two-stage methodology that allows us to study the empirical determinants of the ex post effects of past free trade agreements (FTAs) as well as obtain ex ante predictions for the effects of future FTAs. We first identify 908 unique estimates of the effects of FTAs on different trading pairs for the years 1986-2006. We then employ these estimates as our dependent variable in a “second stage” characterizing the heterogeneity in these effects. Interestingly, most of this heterogeneity (~ 2/3) occurs within FTAs (rather than across different FTAs), with asymmetric effects within pairs (on exports vs. imports) also playing a important role. We offer several intuitive explanations for these variations. Even with the same agreement, FTA effects are weaker for more distant pairs and for pairs with otherwise high levels of ex ante trade frictions. The effects of new FTAs are similarly weaker for pairs with existing agreements already in place. In addition, we are able to relate asymmetries in FTA effects to each country’s ability to influence the other’s terms of trade. Out-of-sample predictions incorporating these insights enable us to predict direction-specific effects of future FTAs between any pair of countries. A simulation of the general equilibrium effects of TTIP demonstrates the importance of our methods

The Currency Union Effect: A PPML Re-assessment with High-Dimensional Fixed Effects

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 limit choice of estimator, leaving an important methodological gap. To address this gap, we unveil an iterative PPML estimator which flexibly accounts for multilateral resistance, pair-specific heterogeneity, and correlated errors across countries and time. When applied to a comprehensive sample with more than 200 countries trading over 65 years, these innovations flip the conclusions of an otherwise rigorously-specified linear model. Our estimates for both the overall CU effect and the Euro effect specifically are economically small and statistically insignificant. The effect of non-Euro CUs, however, is large and significant. Notably, linear and PPML estimates of the Euro effect increasingly diverge as the sample size grows

Do Cross-border Patents Promote Trade?

While we would expect that cross-border patents are used to protect a technology that is made available in another country, that technology could either be produced locally or imported. International patent filings could therefore be either complements or substitutes to international trade. This study combines data on patenting and trade for 149 countries and 249 industries between 1974 and 2006 with a “three-way” panel data model that addresses several biases emphasized in the trade literature in order to provide a systematic analysis of how bilateral trade responds to cross-border patent filings. We find that cross-border patents have a positive (complementary) overall effect on the patent-filing country’s exports to the patent-granting country and no effect overall on imports flowing in the opposite direction. These effects vary substantially across industry groups, with patents promoting significantly more export growth in industries with a high demand elasticity and in industries that are relatively more downstream in supply chains. We also find that patents, once obtained, are associated with increased trade even in jurisdictions with weak intellectual property regimes

Bias and Consistency in Three-way Gravity Models

We study the incidental parameter problem in "three-way" Poisson Pseudo-Maximum Likelihood ("PPML") gravity models recently recommended for identifying the effects of trade policies and in other network panel data settings. Despite the number and variety of fixed effects this model entails, we confirm it is consistent for small $T$ and we show it is in fact the only estimator among a wide range of PML gravity estimators that is generally consistent in this context when $T$ is small. At the same time, asymptotic confidence intervals in fixed-$T$ panels are not correctly centered at the true point estimates, and cluster-robust variance estimates used to construct standard errors are generally biased as well. We characterize each of these biases analytically and show both numerically and empirically that they are salient even for real-data settings with a large number of countries. We also offer practical remedies that can be used to obtain more reliable inferences of the effects of trade policies and other time-varying gravity variables.Comment: JEL Classification Codes: C13; C50; F10 Keywords: Structural Gravity, Trade Agreements; Asymptotic Bias Correctio

Do Cross-border Patents Promote Trade?

While we would expect that cross-border patents are used to protect a technology that is made available in another country, that technology could either be produced locally or imported. International patent filings could therefore be either complements or substitutes to international trade. This study combines data on patenting and trade for 149 countries and 249 industries between 1974 and 2006 with a "three-way" PPML panel data model that addresses several biases emphasized in the trade literature in order to provide a systematic analysis of how bilateral trade responds to cross-border patent filings. We find that cross-border patents have a positive (complementary) overall effect on the patent-filing country's exports to the patent-granting country and no effect overall on imports flowing in the opposite direction. These effects vary substantially across industries and destination markets. Patents promote significantly more bilateral export growth--and significantly less bilateral import growth--in less-differentiated industries and are found to have stronger effects on exports to more distant destinations. These findings support the interpretation that cross-border patents are mainly used to protect cost and/or quality innovations from being adopted by producers of competing products in the patent-granting country