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A survey of the assessments of the effectiveness of Preferential Trade Agreements using gravity models Author info | Abstract | Publisher info | Download info | Related research | Statistics Cardamone, Paola
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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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Date of creation: 2007Date of revision:
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Keywords: International Relations/Trade ; Other versions of this item:
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"A note on the proper econometric specification of the gravity equation ,"
Economics Letters ,
Elsevier, vol. 66(1), pages 25-31, January.
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Other versions: James E. Rauch & Vitor Trindade, 1999.
"Ethnic Chinese Networks in International Trade ,"
NBER Working Papers
7189, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions: Fritz Breuss & Peter Egger, 1999.
"How Reliable Are Estimations of East-West Trade Potentials Based on Cross-Section Gravity Analyses? ,"
Empirica ,
Springer, vol. 26(2), pages 81-94, June.
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Klein, Michael W., 2005.
"Dollarization and trade ,"
Journal of International Money and Finance ,
Elsevier, vol. 24(6), pages 935-943, October.
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Other versions: Hausman, Jerry A & Taylor, William E, 1981.
"Panel Data and Unobservable Individual Effects ,"
Econometrica ,
Econometric Society, vol. 49(6), pages 1377-98, November.
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Jong-Wha Lee & Innwon Park, 2005.
"Free Trade Areas in East Asia: Discriminatory or Non-discriminatory? ,"
The World Economy ,
Blackwell Publishing, vol. 28(1), pages 21-48, 01.
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Daniel Lederman & Çaglar Özden, 2004.
"U.S. Trade Preferences: All are not Created Equal ,"
Working Papers Central Bank of Chile
280, Central Bank of Chile.
[Downloadable!]
Fratianni, Michele & Kang, Heejoon, 2006.
"Heterogeneous distance-elasticities in trade gravity models ,"
Economics Letters ,
Elsevier, vol. 90(1), pages 68-71, January.
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Maurice J. G. Bun & Franc J. G. M. Klaassen, 2007.
"The Euro Effect on Trade is not as Large as Commonly Thought ,"
Oxford Bulletin of Economics and Statistics ,
Department of Economics, University of Oxford, vol. 69(4), pages 473-496, 08.
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Anderson, James E, 1979.
"A Theoretical Foundation for the Gravity Equation ,"
American Economic Review ,
American Economic Association, vol. 69(1), pages 106-16, March.
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Carolina Lennon, 2008.
"Trade in services and trade in goods: differences and complementarities ,"
PSE Working Papers
2008-52, PSE (Ecole normale supérieure).
[Downloadable!]
Limao, Nuno & Venables, Anthony J., 1999.
"Infrastructure, geographical disadvantage, and transport costs ,"
Policy Research Working Paper Series
2257, The World Bank.
[Downloadable!]
Soloaga, Isidro & Alan Wintersb, L., 2001.
"Regionalism in the nineties: what effect on trade? ,"
The North American Journal of Economics and Finance ,
Elsevier, vol. 12(1), pages 1-29, March.
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Theodora Kosma & Antonis Adam & James McHugh, 2003.
"Trade Liberalization Strategies: What Could South Eastern Europe Learn From CEFTA and BFTA? ,"
IMF Working Papers
03/239, International Monetary Fund.
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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.
[Downloadable!]
Kavallari, A. & Maas, S. & Schmitz, P.M., 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.
[Downloadable!]
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.
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