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Analyzing the Impact of Trade Preferences in Gravity Models. Does Aggregation Matter?

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  • Agostino, Maria Rosaria
  • Aiello, Francesco
  • Cardamone, Paola

Abstract

There are two sources of bias in the existing gravity equations used to assess the impact of non-reciprocal preferential trade policies (NRPTPs). The main inconsistency comes from the use of aggregate export flows at country level to analyse the effects of trade preferences which, by contrast, apply at product level. The second source of bias is that the literature does not deal with the main econometric issues which are likely to be present when a gravity equation is estimated. This paper discusses the first problem using evidence based on three levels of data aggregation (total exports, total agricultural exports and 2-digit). Furthermore, the estimation methods take into account the unobservable country heterogeneity as well as the endogeneity of trade preferences and the potential selection bias which zero-trade values pose. We consider all NRPTPs granted by 8 major OECD countries to exports from developing countries over the period 1995-2003. We find two key results. First of all we show that the impact of NRPTPs on total exports is positive, whatever the estimator. This means that, other things being equal, the national exports to the preference-giving country of a preferred country are higher than those of a non-preferred country. Secondly, when the analysis is conducted at 2-digit level, it emerges that the preference premium is very high in many 2-digit sectors, whatever the preferential treatment (GSP and/or other preferences). This finding stands in contrast with the result obtained when total exports are considered, which places the preference gain at lower values.

Suggested Citation

  • Agostino, Maria Rosaria & Aiello, Francesco & Cardamone, Paola, 2007. "Analyzing the Impact of Trade Preferences in Gravity Models. Does Aggregation Matter?," Working Papers 7294, TRADEAG - Agricultural Trade Agreements.
  • Handle: RePEc:ags:tragwp:7294
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    Cited by:

    1. Maria Cipollina & Luca Salvatici, 2010. "Reciprocal Trade Agreements in Gravity Models: A Meta-Analysis," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 63-80, February.
    2. Thomas L. Vollrath & Mark J. Gehlhar & Charles B. Hallahan, 2009. "Bilateral Import Protection, Free Trade Agreements, and Other Factors Influencing Trade Flows in Agriculture and Clothing," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(2), pages 298-317.
    3. Laaksonen, Kalle & Maki-Franti, Petri & Virolainen, Meri, 2007. "Lome Convention, Agriculture and Trade Relations between the EU and the ACP Countries in 1975-2000," Working Papers 18853, TRADEAG - Agricultural Trade Agreements.
    4. Olper, Alessandro & Raimondi, Valentina, 2002. "Elasticity of trade flow to trade barriers: A comparison among emerging estimation techniques," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44119, European Association of Agricultural Economists.
    5. Charlotte Emlinger & Florence Jacquet & Emmanuelle Chevassus Lozza, 2008. "Tariffs and other trade costs: assessing obstacles to Mediterranean countries' access to EU-15 fruit and vegetable markets," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 35(4), pages 409-438, December.
    6. Emiliano Magrini & Pierluigi Montalbano & Silvia Nenci, 2013. "Are the EU trade preferences really effective? A Generalized Propensity Score evaluation of the Southern Mediterranean Countries' case in agriculture and fishery," Working Papers 2/13, Sapienza University of Rome, DISS.
    7. Cipollina, Maria & Salvatici, Luca, 2007. "EU and developing countries: an analysis of preferential margins on agricultural trade flows," Working Papers 7219, TRADEAG - Agricultural Trade Agreements.
    8. repec:brc:brccej:v:3:y:2018:i:1:p:15-23 is not listed on IDEAS
    9. Kavallari, Aikaterini & Maas, Sarah & Schmitz, P. Michael, 2010. "Evidence on Euromediterranean Trade Integration: The Case of German Olive Oil Imports," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 59(1).
    10. Boughanmi Houcine & Al Shidhani Jamal & Mbaga Msafiri & Kotagama Hemesiri, 2010. "The Effects of Regional Trade Arrangements on Agri-Food Trade: An Application of the Gravity Modeling Approach to the Arab Gulf Cooperation Council (GCC) Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 5(3), pages 46-62, February.
    11. Cardamone, Paola, 2007. "A Survey of the Assessments of the Effectiveness of Preferential Trade Agreements using Gravity Models," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 60(4), pages 421-473.
    12. Emiliano Magrini & Pierluigi Montalbano & Silvia Nenci, 2013. "Are the EU trade preferences really effective? A Generalized Propensity Score evaluation of the Southern Mediterranean Countries' case in agriculture and fishery," Working Papers 2/13, Sapienza University of Rome, DISS.
    13. Cooke, Edgar F. A., 2012. "Is the impact of AGOA heterogeneous?," MPRA Paper 43277, University Library of Munich, Germany.

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