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Scale-dependence of the Negative Binomial Pseudo-Maximum Likelihood Estimator.



Following Santos Silva and Tenreyro (2006), various studies have used the Poisson Pseudo-Maximum Likelihood to estimate gravity specifications of trade flows and non-count data models more generally. Some papers also report results based on the Negative Binomial estimator, which is more general and encompasses the Poisson assumption as a special case. This note shows that the Negative Binomial estimator is inappropriate when applied to a continuous dependent variable which unit choice is arbitrary, because estimates artificially depend on that choice.

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