GRAVITY, BILATERAL AGREEMENTS, AND TRADE DIVERSION IN THE AMERICAS

2006

This paper estimates econometrically the impact of NAFTA on US-Mexico and US-third countries (groups of countries) trade flows. Using a traditional gravity-equation framework, we try to see to what extent the bilateral trade flows between the US and different countries differ from a gravity-type specification. By incorporating a series of dummy variables into the specification, we interpret the changes in

World Scientific Studies in International Economics, 2009

The proliferation of FTAs appears to have affected economic conditions in many countries through foreign trade. We attempt to discern the impacts of FTAs on foreign trade by using two approaches. One approach is to examine the changes in trade patterns before and after an FTA by using indicators of intra-FTA interdependence. The second approach is the estimation of a gravity equation to discern the impacts of FTAs on bilateral trade flows, i.e. trade creation and diversion effects. In the latter approach we extend the previous studies by enlarging the sample size in terms of the time-period, and also undertake an analysis by disaggregating the trade data with a presumption that the impact of FTAs is different for different sectors. The results of the analysis revealed several interesting observations. Our analysis of the total trade indicates that FTAs bring about trade creation effect and that trade diversion effect is limited. Besides, the results of our analysis of disaggregated trade data show different patterns among different products, and they identify trade diversion effect for many products in the case of the EU, the NAFTA, and the MERCOSUR but not for the case of the AFTA.

This paper evaluates the static effects of preferential agreements between several economic blocs and areas using a dynamic gravity equation. The main aim is to investigate whether regionalism has fostered intra or/and extra blocs international trade, taking into account the existence of heterogeneity over time and across countries and testing whether a dynamic model is preferred to the traditional static specification of the gravity model. This paper argues that the gravity model should be best estimated using Blundell and Bond's (1998) system-GMM estimator. This procedure remedies some econometric problems such as regressor endogeneity, measurement error and weak instruments, and controls for timeinvariant country-specific effects such as distance or common language. JEL classification: F14;

The World Economy, 2007

This paper argues that the 'competitive liberalisation' of national governments of the past several decades reflects national governments' expectations of larger trade impacts from regional economic integration agreements (EIAs) than typical ex ante economic models have suggested. Moreover, we show that previous (typically cross-section) ex post empirical evaluations of the effects of EIAs on trade have seriously over-or underestimated the effects, partly due to ignoring the (endogenous) self-selection bias of country pairs into EIAs. Accounting for this bias, we find that economic integration agreements in the Americas have had much larger impacts on trade over the period 1960-2000 than previously found and the ex post estimates are less fragile than those in earlier cross-section analyses. The results shed further light on understanding the causes and consequences of the growth of regionalism in the world.

2020

The Andean Community of Nations (CAN), created in 1969, is a regional trade agreement designed to promote development in member countries via integration. Member countries have also signed extra-regional agreements. Fifty years after the creation of CAN, it is crucial to determine whether intraand extra-regional agreements have played a fundamental role in member countries' trade flows, or whether other factors have significantly influenced these trade flows. This study estimates the augmented gravity model for the period 2000-2017. It found evidence that intraand extra-regional agreements have not played a major role in CAN trade flows.

Documentos de Trabajo RedNIE, 2020

In the last decade, there has been an intense development in trade models aiming to explain the determinants of bilateral trade. A seminal theoretical and methodological contribution is Anderson and van Wincoop (2003), who introduced the concept of multilateral resistance and structural gravity. However, there is still an important gap between the theoretical developments of the structural gravity model and its empirical applications. Two main issues come from the presence of zeros in bilateral trade and missing data for internal trade flows (own production oriented to the own market). The presence of zero trade flows has been considered in Santos Silva and Tenreyro (2006) and Helpman, Melitz, and Rubinstein (2008). The consequences of omitting internal transactions have not been much studied, even when its relevance may be greater due to a significant heterogeneity across countries’ openness. The objective of the paper is to analyze and characterize the consequences from omitting internal trade in the estimation of trade proximities (inverse trade costs) and on the values of multilateral resistances, which in turn will affect the comparative statics effects derived from different trade policy measures.

The Open Economics Journal, 2010

The gravity model has been extensively used in international trade research for the last 40 years because of its considerable empirical robustness and explanatory power. Since their introduction in the 1960's, gravity models have been used for assessing trade policy implications and, particularly recently, for analyzing the effects of Free Trade Agreements on international trade. The objective of this paper is to review the recent empirical literature on gravity models, highlight best practices and provide an overview of Free Trade Agreement effects on international trade as reported by relevant gravity model-based studies over the past decade.

2007

Proponents of DR-CAFTA argue the RTA will free the U.S. agricultural sector of these disadvantages by leveling the field through the removal of these tariffs and in many cases, create preferences for U.S. exporters over third country suppliers, including those in Canada, Europe, and South America, helping to restore lost U.S. market share and expand overall U.S. exports. In this paper, we develop gravity models to estimate and predict the potential bilateral trade flows between U.S. and CAFTA countries using panel data. In the course of the study, it was expected that if DR-CAFTA were to have an effect, all countries under the agreement should be trade creators. All the six CAFTA countries but one (Costa Rica) are trade creators. The amount trade created ranges from as low as 1% for Guatemala to as high as 13% for Nicaragua, and Costa Rica only diverse 1% of the potential bilateral trade. The study has also revealed the importance and positive effects of differences between resource...

The World Economy, 2015

Conventional estimate of the trade diversion (TD) effect of preferential trade agreements (PTAs) tends to be much smaller than that of the trade creation (TC) effect. This paper examines two sources of estimation bias of the TD effect. The first bias of TD arises from the difficulty in controlling for multilateral resistance and other unobserved time-varying country heterogeneity when estimating both TC and TD effects simultaneously due to perfect multicollinearity. The second one is the underestimation of TD and arises from the failure to recognize that the concept of TD is inapplicable for a substantial proportion of PTAs and, thus, that the conventional method wrongly counts cases where trade cannot be diverted as cases where trade is not diverted. This paper corrects these two biases by using fixed effects and introducing a new measure of TD which provides a better mapping between the theoretical concept and data characteristics. Removing the two sources of bias leads to a twelve-fold increase in the estimate of the TD effect. It is found that the total TD effect is comparable to the TC effect in dollar terms.

2016

Regional trade agreements (RTAs) have emerged in an environment of stalled multilateral trade negotiations. Their impact on international trade has been well documented, while scant attention has been paid to empirical studies exploring their heterogeneity from the point of view of deep integration. We set out to determine whether deeper RTAs promote trade more effectively than less ambitious agreements. We generate credible deep integration indicators using two recently available datasets from the World Trade Organization (WTO) and the World Trade Institute (WTI-DESTA). We then test the effect of deepness on trade using a gravity model. We treat additive indicators as factor variables and use Multiple Correspondence Analysis (MCA) to obtain distilled indicators of deep integration in order to offer new insight and confirm recent deep integration findings. We find that deeper agreements increase trade more than shallow agreements, irrespective of whether the provisions they contain ...