In cross-section gravity models the two-way cluster-robust standard errors of the Poisson pseudo maximum likelihood (PPML)
estimates tend to be considerably downward biased. However, two-way clustering can be avoided if intra-cluster correlation
is induced by country-specific trade shocks with uniform pass through (equi-correlation) and the gravity model includes exporter
and importer country fixed effects. In this case the pseudo-within-transformation of the PPML estimator projects out the corresponding
components of the disturbances. In Monte Carlo simulations the Pustejovsky and Tipton (2018) bias correction for independent
disturbances (i.e., ignoring clustering) reveals just a small downward bias of the estimated standard errors and confidence
intervals with nearly correct coverage rates. Under deviations from equicorrelation the bias is somewhat larger, but still
comparable to the bias of the cluster-robust standard errors with Pustejovsky and Tipton (2018) bias correction.
In this paper, we revisit the evidence on the effects of time spent on border‐crossing procedures for international trade
using a theory‐consistent structural gravity model. We exploit a rich panel dataset including domestic trade flows and employ
a recent econometric estimator that exhibits favourable asymptotic properties for inference. The results indicate a significant
negative effect of the time required for border procedures that is driven by the time needed for document preparation. We
find that an additional day spent on those procedures corresponds to an ad valorem tariff equivalent of 0.4 percentage points.
The parameters of our structural model are used to simulate three counterfactual scenarios, quantifying the effect of past
and potential future trade facilitation efforts for middle‐, low‐, and high‐income countries. Full endowment general equilibrium
effects suggest that in times of stagnating multilateral and bilateral trade liberalization efforts, unilateral implementation
of trade facilitation carries the potential to induce an alternative stimulus for trade and welfare, especially for low‐ and
This paper proposes a new panel data structural gravity approach for estimating the trade and welfare effects of Brexit. Assuming
different counterfactual post-Brexit scenarios, our main findings suggest that the UK's exports of goods to the EU are likely
to decline within a range between 7.2 percent and 45.7 percent six years after Brexit has taken place. For the UK, the negative
trade effects are only partially offset by an increase in domestic trade and trade with third countries, inducing a decline
in the UK's real income of between 0.3 percent and 5.7 percent. The estimated welfare effects for the EU are not different
from zero, but some members like Ireland are expected to also experience welfare losses.
Confidence intervals using robust PPML-standard errors are too small in cross-section gravity models. Monte Carlo simulations
indicate approximately correct coverage rates of jackknife and percentile bootstrap confidence intervals. Those of constrained
PPML estimates are reliable, if trade costs are non-stochastic.
This paper reconsiders the estimation of structural gravity models. It introduces a constrained, projection-based Poisson
pseudo maximum likelihood estimation procedure (constrained PPML) that exploits the equilibrium conditions introduced by Anderson
and Van Wincoop (2003) for estimation and inference. The constrained PPML estimator avoids the estimation of the large number
of exporter and importer fixed effects, and provides more reliable inference than the unconstrained PPML estimator. Moreover,
based on the delta method the paper drives confidence intervals of counterfactual changes. Monte Carlo simulations yield encouraging
results on the performance of the constrained PPML estimator.