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The Role of History in Bilateral Trade Flows

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Author Info
Barry Eichengreen
Douglas A. Irwin

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Abstract

This paper investigates the theory and evidence that history plays a role in shaping the direction of international trade. Because there are reasons to anticipate a positive correlation between the predominant direction of trade flows in the past and membership in preferential arrangements in the present, there may be a tendency to spuriously attribute to preferential arrangements the effects of historical factors and to exaggerate the influence of the former. Thus, the standard gravity-model formulation, which neglects the role of historical factors, suffers from omitted-variables bias. We illustrate these points by analyzing the evolution of trade between 1949 and 1964. We find that historical factors exercise an important influence on trade even after controlling for the arguments of the standard gravity model.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5565.

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Date of creation: May 1996
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Handle: RePEc:nbr:nberwo:5565

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bayoumi, Tamim & Eichengreen, Barry, 1995. "Is Regionalism Simply a Diversion? Evidence from the Evolution of the EC and EFTA," CEPR Discussion Papers 1294, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 635-54, November. [Downloadable!] (restricted)
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  3. Jeffrey A. Frankel & Ernesto Stein & Shang-Jin Wei, 1993. "Continental Trading Blocs: Are They Natural, or Super-Natural?," NBER Working Papers 4588, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May. [Downloadable!] (restricted)
  6. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier. [Downloadable!] (restricted)
  7. Bean, Charles R, 1987. "Sterling Misalignment and British Trade Performance," CEPR Discussion Papers 177, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September. [Downloadable!] (restricted)
  9. Charles Bean, 1988. "Sterling Misalignment and British Trade Performance," NBER Chapters, in: Misalignment of Exchange Rates, pages 39-76 National Bureau of Economic Research, Inc. [Downloadable!]
  10. Jeffrey Frankel, Ernesto Stein and Shang-jin Wei., 1994. "Trading Blocs: The Natural, the Unnatural, and the Super-Natural," Center for International and Development Economics Research (CIDER) Working Papers C94-034, University of California at Berkeley.
  11. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August. [Downloadable!] (restricted)
  12. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March. [Downloadable!] (restricted)
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