ESTIMATION ISSUES IN SINGLE COMMODITY GRAVITY TRADE MODELS

Recently gravity trade models are applied to disaggregated trade data. Here many zeros arecharacteristic. In the presence of excess zeros usual Poisson Pseudo Maximum Likelihood(PPML) is still consistent, the variance covariance matrix however is invalid. Correcteconomic interpretation however requires also the last. So alternative estimators are lookedfor. STAUB &WINKELMANN (2010) argue that zero-inflated count data models (i.e. zero-inflatedPoisson / Negative Binomial Pseudo Maximum Likelihood (ZIPPML / ZINBPML)) are noalternative since under model misspecification these estimators are inconsistent. Yet zeroinflatedPoisson Quasi-Likelihood (PQL) is a reliable alternative. It is consistent even undermodel misspecifications and beyond that robust against unobserved heterogeneity. Anotheralternative is a log-skew-normal Two-Part Model (G2PM) which generalises the standard lognormalTwo-Part Model (2PM). It is insofar advantageous as it adjusts for (negative)skewness and regression coefficients retain usual interpretations as in log-normal models.PQL is useful for multiplicative gravity model estimation and G2PM for log-linear gravitymodel estimation. Exemplarily the estimators are applied to intra-European piglet trade toassess their empirical performance and applicability for single commodity trade flow analysis.The empirical part favours PQL but G2PM is a reliable alternative for other trade flowanalyses. PQL and G2PM should become standard tools for single commodity trade flow analysis.