Publications
Currency Unions and Trade: A PPML Re-Assessment with High-Dimensional Fixed Effects
(w/ Mario Larch, Joschka Wanner, and Yoto Yotov)
Oxford Bulletin of Economics and Statistics, 81(3), 487-510 (lead article), 2019. (appendix)
In principle, rigorous trade policy analysis requires large data sets, ideally using as many countries and years as possible. However, large samples tend to limit choice of estimator, leaving an important methodological gap. We address this gap by unveiling a high-dimensional fixed effects PPML estimator suitable for trade policy analysis with comprehensive trade data. Our PPML estimates of the currency union effect and of the effect of the Euro specifically offer very different conclusions than an otherwise rigorously-specified linear model.
Firm Heterogeneity and Trade-induced Layoffs: An Empirical Investigation (w/ Pinar Uysal and Yoto V. Yotov)
European Economic Review, 75, 80-97. 2015. (working paper version)
We use a novel data set with verified observations of trade-induced layoffs by U.S. firms to study how firm productivity and exposure to tariff reductions jointly determine the number of job losses due to trade. Guided by the predictions of the Melitz (2003) heterogeneous firms theory, we find the number of trade-induced layoffs decreases with firm productivity for exporting firms, but actually increases with productivity for non-exporters.
On the trade diversion effects of Free Trade Agreements (w/ Mian Dai and Yoto V. Yotov)
Economics Letters, 122(2), 321-325. 2014.
Our novel gravity estimation approach uses pair-wise variation in “outside FTA's”—agreements either trading partner has with a third country—to confirm that FTAs divert trade away from non-member countries. Interestingly, we find that diversion from internal trade (domestic sales) due to FTAs has been significantly stronger than diversion from external trade.
On the Widely Differing Effects of Free Trade Agreements: Lessons from Twenty Years of Trade Integration
(w/ Scott Baier and Yoto Yotov)
Journal of International Economics, 116, 206-226. 2019. (working paper version)
We develop a novel two-stage methodology that allows us to study and predict heterogeneity in the effects of FTAs. We offer several intuitive ways of explaining the rich variation we observe in our estimates of FTA effects. Even within the same agreement, FTA effects are weaker for more distant pairs, but stronger for those with otherwise high levels of ex ante trade frictions. Guided by theory, we also relate asymmetric effects within pairs to each country’s ability to influence the other’s terms of trade. We demonstrate the usefulness of our methods by simulating the effects of TTIP.
ppmlhdfe: Fast Poisson Estimation with High-Dimensional Fixed Effects (with Sergio Correia and Paulo Guimarães)
Stata Journal. 20(1), 95-115. 2020. (working paper version)
We present a new algorithm for estimating Poisson regressions w/ high-dimensional fixed effects based on iteratively reweighted least squares (IRLS). Our algorithm takes advantage of recent methods for fast estimation of large linear models as well as some new techniques we introduce for accelerating IRLS w/ high-dimensional covariates. We also include a comprehensive check for the non-existence of estimates and incorporate remedies from a companion paper.
(w/ Mario Larch, Joschka Wanner, and Yoto Yotov)
Oxford Bulletin of Economics and Statistics, 81(3), 487-510 (lead article), 2019. (appendix)
In principle, rigorous trade policy analysis requires large data sets, ideally using as many countries and years as possible. However, large samples tend to limit choice of estimator, leaving an important methodological gap. We address this gap by unveiling a high-dimensional fixed effects PPML estimator suitable for trade policy analysis with comprehensive trade data. Our PPML estimates of the currency union effect and of the effect of the Euro specifically offer very different conclusions than an otherwise rigorously-specified linear model.
- Replaces older working paper: "The Currency Union Effect: A PPML Reassessment with High-Dimensional Fixed Effects"
Firm Heterogeneity and Trade-induced Layoffs: An Empirical Investigation (w/ Pinar Uysal and Yoto V. Yotov)
European Economic Review, 75, 80-97. 2015. (working paper version)
We use a novel data set with verified observations of trade-induced layoffs by U.S. firms to study how firm productivity and exposure to tariff reductions jointly determine the number of job losses due to trade. Guided by the predictions of the Melitz (2003) heterogeneous firms theory, we find the number of trade-induced layoffs decreases with firm productivity for exporting firms, but actually increases with productivity for non-exporters.
On the trade diversion effects of Free Trade Agreements (w/ Mian Dai and Yoto V. Yotov)
Economics Letters, 122(2), 321-325. 2014.
Our novel gravity estimation approach uses pair-wise variation in “outside FTA's”—agreements either trading partner has with a third country—to confirm that FTAs divert trade away from non-member countries. Interestingly, we find that diversion from internal trade (domestic sales) due to FTAs has been significantly stronger than diversion from external trade.
On the Widely Differing Effects of Free Trade Agreements: Lessons from Twenty Years of Trade Integration
(w/ Scott Baier and Yoto Yotov)
Journal of International Economics, 116, 206-226. 2019. (working paper version)
We develop a novel two-stage methodology that allows us to study and predict heterogeneity in the effects of FTAs. We offer several intuitive ways of explaining the rich variation we observe in our estimates of FTA effects. Even within the same agreement, FTA effects are weaker for more distant pairs, but stronger for those with otherwise high levels of ex ante trade frictions. Guided by theory, we also relate asymmetric effects within pairs to each country’s ability to influence the other’s terms of trade. We demonstrate the usefulness of our methods by simulating the effects of TTIP.
- Featured in CESifo Newsletter and VoxEU.
ppmlhdfe: Fast Poisson Estimation with High-Dimensional Fixed Effects (with Sergio Correia and Paulo Guimarães)
Stata Journal. 20(1), 95-115. 2020. (working paper version)
We present a new algorithm for estimating Poisson regressions w/ high-dimensional fixed effects based on iteratively reweighted least squares (IRLS). Our algorithm takes advantage of recent methods for fast estimation of large linear models as well as some new techniques we introduce for accelerating IRLS w/ high-dimensional covariates. We also include a comprehensive check for the non-existence of estimates and incorporate remedies from a companion paper.
- github repository with examples, code, and benchmarks
- Verifying the Existence of Maximum Likelihood Estimates for Generalized Linear Models, a companion paper that describes the problem of non-existence of estimates in nonlinear GLM models.
Working Papers
Bias and Consistency in Three-way Gravity Models (with Martin Weidner)
We study the incidental parameter problem in three-way PPML gravity models recently recommended for identifying the effects of trade policies. We show that, while PPML has unique consistency properties in this context, it suffers from an asymptotic bias whenever the time dimension is fixed, and cluster-robust variance estimates used to construct standard errors are generally biased as well. We also present several bias-correction methods that lead to more reliable inferences.
Do Cross-border Patents Promote Trade? (with Claire Brunel)
We perform a systematic panel data analysis of foreign patents and trade. We find that, yes, patents evidently do promote trade. But perhaps not in the way you might think: among other things, we show that patents have had significantly larger effects in less-differentiated industries where monopoly rights over a particular variety should be less valuable. We also show that patent protection laws do matter for the effectiveness of patents, but only for highly R&D-intensive goods.
The Effect of Free Trade Agreements on Product-level Trade (with Scott French) (slides)
We test whether "least traded products" experience faster trade growth after the signing of trade agreements and whether this is important for the aggregate trade creation effects of trade agreements. The answer is yes and yes.
Feeding China's Rise: The Growth Effects of Trading with China, 1993-2011
How much has China's trade expansion contributed to world economic growth over the last two decades? I investigate this question using a dynamic trade and growth model that combines endogenous capital accumulation with a rich sectoral dimension, where each sector differs in its usage as an input to consumption, investment, and production. The “dynamic sectoral linkages” highlighted by this setting deliver a wider set of possibilities for the gains from trade and, ultimately, larger real income gains from China's trade expansion, especially in the long run.
The Problem of Peace: A Story of Corruption, Destruction, and Rebellion (with Constantinos Syropoulos)
We explore how the central presence of state institutions in civil conflicts generates unique explanations for the emergence of destructive war. We do so in a model where a kleptocratic government and an equally self-interested “rebel” rival compete for insecure resources by raising armies from a common labor population. We show the government may actively favor conflict in this setting, even though conflict results in wasteful destruction, in order to enhance the value it derives from its use of fiscal policy.
Prudence versus Predation and the Gains from Trade (with Michelle Garfinkel and Constantinos Syropoulos)
We use a two-country dynamic model to study how the perceived likelihood of a future international conflict shapes resource allocation decisions and preferences over trade in the present. Our theory demonstrates that the larger of the two countries could find trade to be unappealing due to the ensuing consequences for its future national security. An empirical analysis of the period surrounding the end of the Cold War offers suggestive evidence in support of the theory.
Verifying the Existence of Maximum Likelihood Estimates for Generalized Linear Models
(w/ Sergio Correia and Paulo Guimarães)
There has been considerable ambiguity over how to verify whether estimates from nonlinear models “exist” and what can be done if they do not. We characterize the problem in detail across a wide range of generalized linear models and introduce a novel method for dealing with it in the presence of high-dimensional fixed effects, as are often recommended for gravity models and in other common panel settings.
We study the incidental parameter problem in three-way PPML gravity models recently recommended for identifying the effects of trade policies. We show that, while PPML has unique consistency properties in this context, it suffers from an asymptotic bias whenever the time dimension is fixed, and cluster-robust variance estimates used to construct standard errors are generally biased as well. We also present several bias-correction methods that lead to more reliable inferences.
- Revise and resubmit at Journal of International Economics
- See here for a Stata package that implements the methods described in this paper.
Do Cross-border Patents Promote Trade? (with Claire Brunel)
We perform a systematic panel data analysis of foreign patents and trade. We find that, yes, patents evidently do promote trade. But perhaps not in the way you might think: among other things, we show that patents have had significantly larger effects in less-differentiated industries where monopoly rights over a particular variety should be less valuable. We also show that patent protection laws do matter for the effectiveness of patents, but only for highly R&D-intensive goods.
- Revise and resubmit at Canadian Journal of Economics
The Effect of Free Trade Agreements on Product-level Trade (with Scott French) (slides)
We test whether "least traded products" experience faster trade growth after the signing of trade agreements and whether this is important for the aggregate trade creation effects of trade agreements. The answer is yes and yes.
Feeding China's Rise: The Growth Effects of Trading with China, 1993-2011
How much has China's trade expansion contributed to world economic growth over the last two decades? I investigate this question using a dynamic trade and growth model that combines endogenous capital accumulation with a rich sectoral dimension, where each sector differs in its usage as an input to consumption, investment, and production. The “dynamic sectoral linkages” highlighted by this setting deliver a wider set of possibilities for the gains from trade and, ultimately, larger real income gains from China's trade expansion, especially in the long run.
The Problem of Peace: A Story of Corruption, Destruction, and Rebellion (with Constantinos Syropoulos)
We explore how the central presence of state institutions in civil conflicts generates unique explanations for the emergence of destructive war. We do so in a model where a kleptocratic government and an equally self-interested “rebel” rival compete for insecure resources by raising armies from a common labor population. We show the government may actively favor conflict in this setting, even though conflict results in wasteful destruction, in order to enhance the value it derives from its use of fiscal policy.
Prudence versus Predation and the Gains from Trade (with Michelle Garfinkel and Constantinos Syropoulos)
We use a two-country dynamic model to study how the perceived likelihood of a future international conflict shapes resource allocation decisions and preferences over trade in the present. Our theory demonstrates that the larger of the two countries could find trade to be unappealing due to the ensuing consequences for its future national security. An empirical analysis of the period surrounding the end of the Cold War offers suggestive evidence in support of the theory.
- Revise and resubmit at Journal of Economic Theory
Verifying the Existence of Maximum Likelihood Estimates for Generalized Linear Models
(w/ Sergio Correia and Paulo Guimarães)
There has been considerable ambiguity over how to verify whether estimates from nonlinear models “exist” and what can be done if they do not. We characterize the problem in detail across a wide range of generalized linear models and introduce a novel method for dealing with it in the presence of high-dimensional fixed effects, as are often recommended for gravity models and in other common panel settings.
- github repository with examples, code, and benchmarks
- ppmlhdfe: Fast Poisson Estimation with High-Dimensional Fixed Effects, a companion paper that describes our new ppmlhdfe Stata command.
Code
ge_gravity: Stata program for solving a simple general equilibrium trade model. Ideal for bootstrapping GE results based on prior gravity estimates. (program) (help file) (examples)
ppmlhdfe: Poisson Pseudo-maximum Likelihood estimation with high-dimensional fixed effects. For use in Stata.
ppml_fe_bias: Bias corrections for Poisson Pseudo-maximum Likelihood gravity models with two- and three-way fixed effects. For use in Stata. (program) (help file) (examples)
- Suggested citation: “On the Widely Differing Effects of Free Trade Agreements” (see above)
ppmlhdfe: Poisson Pseudo-maximum Likelihood estimation with high-dimensional fixed effects. For use in Stata.
- Suggested citations (2): “Verifying existence” and the “ppmlhdfe” companion paper (see above)
ppml_fe_bias: Bias corrections for Poisson Pseudo-maximum Likelihood gravity models with two- and three-way fixed effects. For use in Stata. (program) (help file) (examples)
- Suggested citation: "Bias and Consistency in Three-way Gravity Models" (see above)
- Featured in the WTO's "An Advanced Guide to Trade Policy Analysis".
- Suggested citation: “Currency Unions and Trade” (see above)
More about me...
Citizenship: UK/US (dual national)
Education: University of Pennsylvania (B.A., Mathematics and English, 2005); Drexel University (Ph.D., Economics, 2015)
Hometown: Wilmington, DE
Education: University of Pennsylvania (B.A., Mathematics and English, 2005); Drexel University (Ph.D., Economics, 2015)
Hometown: Wilmington, DE