State Dependence and Unobserved Heterogeneity in the Extensive Margin of Trade

  title={State Dependence and Unobserved Heterogeneity in the Extensive Margin of Trade},
  author={Julian Hinz and Amrei Stammann and Joschka Wanner},
  journal={arXiv: Econometrics},
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… Expand
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