Dear Joao Santos Silva,
Thank you for your answer. I have been looking into the PPML command and have read your influential and linking papers after receiving your answer. Apologies for not directly showing my gratitude. Although I have learnt a lot, I still face some issues for which I cannot find the answer. Being it in research papers or on this forum. For my master thesis I am looking into the possible trade creation/diversion effect from the ASEAN-China FTA. I use a panel data from 2000 till 2018 consisting out of 339.604 observations and 164 countries. Using bilateral export data, no zero values included, as the dependent variable. At the same time of course introducing several gravity control variables (distance, gdp, common language etc.). To measure the trade create/diversion effect I follow Yang and Martinez-Zarzoso (2014) using three dummy variables. ACFTA1 being 1 if both countries are in the ACFTA, ACFTA2 being 1 if the exporter is in the ACFTA and the importer not. Finally, ACFTA3 being 1 if the importer is in the ACFTA and the exporter not. Following several papers I have decided that in my final/concluding equation I will use ppmlhdfe adding both importer- and exporter-time fixed effects plus country pair fixed effects clustered by countrypair. However, when I do this ACFTA2 and ACFTA3 drop out due to collinearity. I can almost make all combinations (of fixed effects) where they do not dropout, but from the moment when I add importer- and exporter-time fixed effects they do. I do not understand why and decide following the literature that including these fixed effects is a must.
Besides that I have another question. I want to add several other equations as a benchmark for instance by adding only country fixed effects, or time fixed effects. Should I therefore also use ppmlhdfe or could/should I use the reghdfe here?
Hopefully you understand the situation that I have described.
Best wishes,
Joel
Thank you for your answer. I have been looking into the PPML command and have read your influential and linking papers after receiving your answer. Apologies for not directly showing my gratitude. Although I have learnt a lot, I still face some issues for which I cannot find the answer. Being it in research papers or on this forum. For my master thesis I am looking into the possible trade creation/diversion effect from the ASEAN-China FTA. I use a panel data from 2000 till 2018 consisting out of 339.604 observations and 164 countries. Using bilateral export data, no zero values included, as the dependent variable. At the same time of course introducing several gravity control variables (distance, gdp, common language etc.). To measure the trade create/diversion effect I follow Yang and Martinez-Zarzoso (2014) using three dummy variables. ACFTA1 being 1 if both countries are in the ACFTA, ACFTA2 being 1 if the exporter is in the ACFTA and the importer not. Finally, ACFTA3 being 1 if the importer is in the ACFTA and the exporter not. Following several papers I have decided that in my final/concluding equation I will use ppmlhdfe adding both importer- and exporter-time fixed effects plus country pair fixed effects clustered by countrypair. However, when I do this ACFTA2 and ACFTA3 drop out due to collinearity. I can almost make all combinations (of fixed effects) where they do not dropout, but from the moment when I add importer- and exporter-time fixed effects they do. I do not understand why and decide following the literature that including these fixed effects is a must.
Besides that I have another question. I want to add several other equations as a benchmark for instance by adding only country fixed effects, or time fixed effects. Should I therefore also use ppmlhdfe or could/should I use the reghdfe here?
Hopefully you understand the situation that I have described.
Best wishes,
Joel
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