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Regional Integration and Trade: Controlling for Varying Degrees of Heterogeneity in the Gravity Model

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  • Marie M. Stack

Abstract

The proliferation of regional trade agreements (RTAs) in the 1990s prompted a renewal of interest in studying the effect of regional integration on trade. Using a panel dataset of bilateral export flows from 12 EU countries to 20 OECD trading partners over the period 1992-2003, the trade effect of European regional integration, denoted by an EU dummy, is examined across a number of fixed effects (FE) specifications, each of which has been claimed as the correct econometric specification of the gravity model. Typically parsimonious in (time-varying) economic variables and abundant in fixed effects, the FE specifications allow for varying degrees of heterogeneity in the gravity model. Two gravity models are estimated: a gravity model of traditional trade determinants and a gravity model of new trade theory (NTT) determinants. Both gravity models provide reasonable coefficient estimates, although they vary somewhat across the FE specifications for the traditional gravity model. Both gravity models are congruent in suggesting that the coefficient of the EU dummy declines in magnitude and becomes insignificant as an increasing degree of heterogeneity is admitted into the model. This suggests the fundamental importance of the econometric specification when evaluating trade policy effects within a gravity framework. Copyright 2009 The Author. Journal compilation 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Marie M. Stack, 2009. "Regional Integration and Trade: Controlling for Varying Degrees of Heterogeneity in the Gravity Model," The World Economy, Wiley Blackwell, vol. 32(5), pages 772-789, May.
  • Handle: RePEc:bla:worlde:v:32:y:2009:i:5:p:772-789
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    References listed on IDEAS

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    Cited by:

    1. Maria Cipollina & Luca Salvatici & Luca De Benedictis & Claudio Vicarelli, 2013. "A note on dummies for policies in gravity models: a Montecarlo experiment," Departmental Working Papers of Economics - University 'Roma Tre' 0180, Department of Economics - University Roma Tre.
    2. Taguchi, Hiroyuki, 2013. "Trade integration of Thailand with Mekong region," MPRA Paper 81807, University Library of Munich, Germany.
    3. Lin, Faqin, 2012. "The Uneven Roles of FTAs: Selection Effect or “Learning†Effect?," Review of Applied Economics, Review of Applied Economics, vol. 8(1).
    4. Cipollina, Maria Pina & De Benedictis, Luca & Salvatici, Luca & Vicarelli, Claudio, 2016. "Policy Measurement and Multilateral Resistance in Gravity Models," MPRA Paper 75255, University Library of Munich, Germany.
    5. P. Montalbano & S. Nenci, 2014. "Assessing the trade impact of the European Neighbourhood Policy on the EU-MED Free Trade Area," Applied Economics, Taylor & Francis Journals, vol. 46(7), pages 730-740, March.
    6. Patricia Sourdin & Richard Pomfret, 2012. "Trade Facilitation," Books, Edward Elgar Publishing, number 14596.
    7. repec:ksa:szemle:1720 is not listed on IDEAS
    8. Lavinia Rotili, 2014. "The Euro effects on intermediate and final exports," Working Papers 7/14, Sapienza University of Rome, DISS.
    9. Seok, Jun Ho & Reed, Michael Robert & Saghaian, Sayed, 3. "The Impact Of Sqf Certification On U.S. Agri-Food Exports," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 4(3).
    10. Taguchi, Hiroyuki & Nozaki, Kenji, 2014. "Regional connectivity in continental ASEAN," MPRA Paper 64410, University Library of Munich, Germany.
    11. Valeria Costantini & Francesco Crespi, 2015. "European enlargement policy, technological capabilities and sectoral export dynamics," The Journal of Technology Transfer, Springer, vol. 40(1), pages 25-69, February.
    12. Hiroyuki Taguchi & Ni Lar, 2015. "Fragmentation And Trade Of Machinery Parts And Components In Mekong Region," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(05), pages 1-21, December.
    13. Petra Bubáková, 2013. "Gravity Model of International Trade, Its Variables, Assumptions, Problems and Applications," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2013(2), pages 3-24.
    14. repec:bla:worlde:v:40:y:2017:i:10:p:2255-2276 is not listed on IDEAS

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