Premium
GEPPML: General equilibrium analysis with PPML
Author(s) -
Anderson James E.,
Larch Mario,
Yotov Yoto V.
Publication year - 2018
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12664
Subject(s) - comparative statics , counterfactual thinking , economics , estimator , gravity model of trade , econometrics , general equilibrium theory , poisson distribution , simple (philosophy) , applied general equilibrium , mathematical optimization , mathematical economics , mathematics , international trade , microeconomics , statistics , philosophy , epistemology
We develop a simple procedure for general equilibrium comparative static analysis of gravity models. Non‐linear solvers are replaced by (constrained) regressions using theoretical properties of the Poisson pseudo‐maximum‐likelihood estimator. Our GEPPML procedure can readily be implemented in any software capable of estimating constrained Poisson models. The procedure accommodates calibrated as well as estimated trade costs while using the estimation power of structural gravity to generate GE comparative statics. Using GEPPML, we quantify the effects of a hypothetical removal of all international borders while preserving the impact of geography on trade. We find that trade liberalisation has reaped at most half the potential world gains from trade in 2002 manufacturing. A complementary counterfactual experiment simulates the removal of the border between Canada and US, thus contributing to the famous “border puzzle” literature in a multicountry setting.