TY  - RPRT
A1  - Hinz, Julian
A1  - Stammann, Amrei
A1  - Wanner, Joschka
T1  - State Dependence and Unobserved Heterogeneity in the Extensive Margin of Trade
T2  - CEPA Discussion Papers
N2  - We study the role and drivers of persistence in the extensive margin of bilateral trade. Motivated by a stylized heterogeneous firms model of international trade with market entry costs, we consider dynamic three-way fixed effects binary choice models and study the corresponding incidental parameter problem. The standard maximum likelihood estimator is consistent under asymptotics where all panel dimensions grow at a constant rate, but it has an asymptotic bias in its limiting distribution, invalidating inference even in situations where the bias appears to be small. Thus, we propose two different bias-corrected estimators. Monte Carlo simulations confirm their desirable statistical properties. We apply these estimators in a reassessment of the most commonly studied determinants of the extensive margin of trade. Both true state dependence and unobserved heterogeneity contribute considerably to trade persistence and taking this persistence into account matters significantly in identifying the effects of trade policies on the extensive margin.
T3  - CEPA Discussion Papers - 36 
KW  - dynamic binary choice
KW  - extensive margin
KW  - high-dimensional fixed effects
KW  - incidental parameter bias correction
KW  - trade policy
Y1  - 2021
U6  - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:kobv:517-opus4-511919
SN  - 2628-653X
ER  -