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On the Trade and Price Effects of Preferential Trade Agreements

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  • Rod Falvey
  • Neil Foster-McGregor

    ()
    (The Vienna Institute for International Economic Studies, wiiw)

Abstract

Abstract In this paper we extend recent work using the Gravity Model to estimate the trade and price effects of Preferential Trading Agreements (PTAs), by explicitly taking into account the extent of the preferential access being provided by the importer. This involves specifying a trade model, deriving appropriate PTA variables, appending them to a gravity-type equation and estimating it. We find that relying on the estimated coefficient on a PTA dummy variable overestimates the trade creating effects of PTAs. We also use average tariff and estimated trade cost data to calculate the effects of the PTAs in force in 2006 on trade flows. We show that ignoring the general equilibrium effects of PTA membership greatly distorts the distribution of outcomes.

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Bibliographic Info

Paper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Working Papers with number 102.

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Length: 27 pages including 10 Tables and 1 Figure
Date of creation: Jun 2013
Date of revision:
Publication status: Published as wiiw Working Paper
Handle: RePEc:wii:wpaper:102

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Keywords: preferential trading agreements; Gravity Model; trade diversion;

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  1. Scott L. Baier & Jeffrey H. Bergstrand, 2005. "Do free trade agreements actually increase members’ international trade?," Working Paper 2005-03, Federal Reserve Bank of Atlanta.
  2. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  3. Cipollina, Maria & Salvatici, Luca, 2006. "Reciprocal Trade Agreements in Gravity Models: A Meta-analysis," Working Papers 18877, TRADEAG - Agricultural Trade Agreements.
  4. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
  5. Carrere, Celine, 2006. "Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model," European Economic Review, Elsevier, vol. 50(2), pages 223-247, February.
  6. Peter Egger & Mario Larch & Kevin E. Staub & Rainer Winkelmann, 2010. "The Trade Effects of Endogenous Preferential Trade Agreements," SOI - Working Papers 1013, Socioeconomic Institute - University of Zurich.
  7. Richard Baldwin & Dany Jaimovich, 2010. "Are Free Trade Agreements Contagious?," NBER Working Papers 16084, National Bureau of Economic Research, Inc.
  8. World Bank, 2008. "World Development Indicators 2008," World Bank Publications, The World Bank, number 11855.
  9. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  10. URATA Shujiro & OKABE Misa, 2007. "The Impacts of Free Trade Agreements on Trade Flows: An Application of the Gravity Model Approach," Discussion papers 07052, Research Institute of Economy, Trade and Industry (RIETI).
  11. James E. Anderson & Yoto V. Yotov, 2011. "Terms of Trade and Global Efficiency Effects of Free Trade Agreements, 1990-2002," Boston College Working Papers in Economics 780, Boston College Department of Economics, revised 11 Oct 2011.
  12. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
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