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A survey of the assessments of the effectiveness of Preferential Trade Agreements using gravity models

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  • Cardamone, Paola

Abstract

This paper reviews the empirical literature using a gravity model to assess the impact on trade of Preferential Trade Agreements (PTAs) and provides a critical analysis of the choices made to carry out the estimations. With respect to the effectiveness of PTAs, the main result that emerges from the review is that PTAs tend to foster trade between the countries involved. However, two empirical issues appear relevant. First, the use of dummy variables to proxy PTAs does not adequately describe the preferences granted and can be misleading. Indeed, the use of dummies does not allow to discern among the different preferential trade policy instruments used as well as to measure the level of the trade preferences granted. As a result, dummies do not allow to capture the specific effect of the preferences on bilateral trade. Second, the econometric methods used do not always address in a satisfactory way the potential sources of bias in the estimations, such as unobserved heterogeneity, endogeneity of some regressors and zero-trade flows. Thus, with respect to the empirical issues, the main conclusion which can be drawn from this survey is that the proposed estimates so far of the effects of PTAs using gravity models tend to be biased and, as a result, are not fully reliable.

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Paper provided by TRADEAG - Agricultural Trade Agreements in its series Working Papers with number 7282.

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Date of creation: 2007
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Handle: RePEc:ags:tragwp:7282

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Keywords: International Relations/Trade;

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Cited by:
  1. Cipollina, Maria & Salvatici, Luca, 2007. "EU and developing countries: an analysis of preferential margins on agricultural trade flows," Working Papers 7219, TRADEAG - Agricultural Trade Agreements.
  2. Giovanni Anania, 2007. "Multilateral trade negotiations, preferential trade agreements and European Union’s agricultural policies," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 3, July.
  3. Charlotte Emlinger & Florence Jacquet & Emmanuelle Chevassus Lozza, 2008. "Tariffs and other trade costs: assessing obstacles to Mediterranean countries' access to EU-15 fruit and vegetable markets," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 35(4), pages 409-438, December.
  4. Cooke, Edgar F. A., 2012. "Is the impact of AGOA heterogeneous?," MPRA Paper 43277, University Library of Munich, Germany.
  5. Agostino, Maria Rosaria & Aiello, Francesco & Cardamone, Paola, 2007. "Analyzing the Impact of Trade Preferences in Gravity Models. Does Aggregation Matter?," Working Papers 7294, TRADEAG - Agricultural Trade Agreements.
  6. Iapadre, P. Lelio & Tajoli, Lucia, 2014. "Emerging countries and trade regionalization. A network analysis," Journal of Policy Modeling, Elsevier, vol. 36(S1), pages S89-S110.
  7. Neil Foster, 2012. "Preferential Trade Agreements and the Margins of Imports," Open Economies Review, Springer, vol. 23(5), pages 869-889, November.
  8. Kavallari, Aikaterini & Maas, Sarah & Schmitz, P. Michael, 2010. "Evidence on Euromediterranean Trade Integration: The Case of German Olive Oil Imports," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 59(1).
  9. Kavallari, Aikaterini & Maas, Sarah & Schmitz, P. Michael, 2008. "Explaining German imports of olive oil: evidence from a gravity model," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44217, European Association of Agricultural Economists.
  10. Cipollina, Maria & Laborde, David & Salvatici, Luca, 2013. "Do Preferential Trade Policies (Actually) Increase Exports? An analysis of EU trade policies," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150177, Agricultural and Applied Economics Association.

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