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Regional integration and trade: A panel cointegration approach to estimating the gravity model


  • Marie Stack
  • Eric Pentecost


Using a panel data set of bilateral export flows from 12 European Union (EU) countries to 20 Organisation for Economic Co-operation and Development (OECD) trading partners over the period 1992-2003, a panel cointegration approach to estimating the gravity model is adopted to test for the significance of European regional integration. A comparison of the results indicates that a positive and significant coefficient estimate of the EU dummy variable is found for both the pooled ordinary least squares (POLS) estimator and the dynamic ordinary least squares (DOLS) estimator. The results, however, diverge once fixed effects are admitted into the model. The least squares dummy variable (LSDV) estimator suggests a small positive effect of EU integration on trade. In contrast, the dynamic LSDV estimator indicates that regional integration has a larger beneficial effect on trade. The results highlight the fundamental importance of properly accounting for endogeneity when evaluating trade policy effects.

Suggested Citation

  • Marie Stack & Eric Pentecost, 2011. "Regional integration and trade: A panel cointegration approach to estimating the gravity model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(1), pages 53-65.
  • Handle: RePEc:taf:jitecd:v:20:y:2011:i:1:p:53-65
    DOI: 10.1080/09638199.2011.538184

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    Cited by:

    1. Feng Dai & Songtao Wu & Ling Liang & Zifu Qin, 2016. "Bilateral Trade under Environmental Pressure: Balanced Growth," Journal of Industry, Competition and Trade, Springer, vol. 16(2), pages 209-231, June.
    2. Suresh K G & Neeraj Aswal, 2014. "Determinants of India’s Manufactured Exports to South and North: A Gravity Model Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 4(1), pages 144-151.
    3. 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.
    4. Mahdi Ghodsi, 2015. "The Role of Specific Trade Concerns Raised on TBTs in the Import of Products to the EU, USA and China," wiiw Working Papers 116, The Vienna Institute for International Economic Studies, wiiw.
    5. repec:ksa:szemle:1720 is not listed on IDEAS
    6. Barnes, Ryan & Bosworth, Ryan, 2015. "LNG is linking regional natural gas markets: Evidence from the gravity model," Energy Economics, Elsevier, vol. 47(C), pages 11-17.


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