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New measures of trade creation and trade diversion

  • Magee, Christopher S.P.
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    This paper estimates the effects of regional agreements on trade flows controlling for country pair, importer-year, and exporter-year fixed effects. These fixed effects capture the determinants of trade flows normally included in gravity model specifications and control for yearly shocks to countries' trade. Controlling for the fixed effects generally reduces the estimated trade impacts of regional agreements. The estimates reveal that regional agreements have significant anticipatory effects on trade flows and continue to affect trade for up to 11Â years after they begin. The paper also presents estimated effects on individual countries' trade flows in year five of the agreements.

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    File URL: http://www.sciencedirect.com/science/article/B6V6D-4S85DTN-2/1/f62d08e6f12e62bf461321aca3f6ba71
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    Article provided by Elsevier in its journal Journal of International Economics.

    Volume (Year): 75 (2008)
    Issue (Month): 2 (July)
    Pages: 349-362

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    Handle: RePEc:eee:inecon:v:75:y:2008:i:2:p:349-362
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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    1. Ghosh, Sucharita & Yamarik, Steven, 2004. "Are regional trading arrangements trade creating?: An application of extreme bounds analysis," Journal of International Economics, Elsevier, vol. 63(2), pages 369-395, July.
    2. Paul Krugman, 1991. "The move toward free trade zones," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 5-25.
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    4. Tamim Bayoumi & Barry J. Eichengreen, 1995. "Is Regionalism Simply a Diversion? Evidence from the Evolution of the EC and EFTA," IMF Working Papers 95/109, International Monetary Fund.
    5. Wylie, Peter J., 1995. "Partial equilibrium estimates of manufacturing trade creation and diversion due to NAFTA," The North American Journal of Economics and Finance, Elsevier, vol. 6(1), pages 65-84.
    6. 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.
    7. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June.
    8. Karemera, David & Ojah, Kalu, 1998. "An Industrial Analysis of Trade Creation and Diversion Effects of NAFTA," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 400-425.
    9. Magee Christopher S, 2003. "Endogenous Preferential Trade Agreements: An Empirical Analysis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-19, December.
    10. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate Of The Effect Of Common Currencies On Trade And Income," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 437-466, May.
    11. Anne O. Krueger, 1999. "Trade Creation and Trade Diversion Under NAFTA," NBER Working Papers 7429, National Bureau of Economic Research, Inc.
    12. Caroline L. Freund & John McLaren, 1999. "On the dynamics of trade diversion: evidence from four trade blocs," International Finance Discussion Papers 637, Board of Governors of the Federal Reserve System (U.S.).
    13. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
    14. Patrick J. Kehoe & Timothy J. Kehoe, 1994. "Capturing NAFTA's impact with applied general equilibrium models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 17-34.
    15. Haveman, J-D & Hummels, D, 1996. "Trade Creation and Trade Diversion : New Empirical Results," Papers 96-004, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
    16. Mary E. Burfisher & Sherman Robinson & Karen Thierfelder, 2001. "The Impact of NAFTA on the United States," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 125-144, Winter.
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