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Staggered Difference-in-Differences in Gravity Settings: Revisiting the Effects of Trade Agreements

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  • Arne J. Nagengast
  • Yoto V. Yotov

Abstract

We nest an extended two-way fixed effect (ETWFE) estimator for staggered difference-in-differences within the structural gravity model. To test the ETWFE, we estimate the effects of regional trade agreements (RTAs). The results suggest that RTA estimates in the current gravity literature may be biased downward (by more than 50% in our sample). Sensitivity analyses confirm the robustness of our main findings and demonstrate the applicability of our methods in different settings. We expect the ETWFE methods to have significant implications for the estimates of other policy variables in the trade literature and for gravity regressions on migration and FDI flows.

Suggested Citation

  • Arne J. Nagengast & Yoto V. Yotov, 2023. "Staggered Difference-in-Differences in Gravity Settings: Revisiting the Effects of Trade Agreements," CESifo Working Paper Series 10782, CESifo.
    • Handle: RePEc:ces:ceswps:_10782
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    References listed on IDEAS

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    1. Clément de Chaisemartin & Xavier D'Haultfœuille, 2020. "Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects," American Economic Review, American Economic Association, vol. 110(9), pages 2964-2996, September.
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    5. Kurt Schmidheiny & Sebastian Siegloch, 2023. "On event studies and distributed‐lags in two‐way fixed effects models: Identification, equivalence, and generalization," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(5), pages 695-713, August.
    6. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
    7. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    8. Damiaan Persyn & Wouter Torfs, 2016. "A gravity equation for commuting with an application to estimating regional border effects in Belgium," Journal of Economic Geography, Oxford University Press, vol. 16(1), pages 155-175.
    9. Baker, Andrew C. & Larcker, David F. & Wang, Charles C.Y., 2022. "How much should we trust staggered difference-in-differences estimates?," Journal of Financial Economics, Elsevier, vol. 144(2), pages 370-395.
    10. Gary Clyde Hufbauer & Barbara Oegg, 2003. "The Impact of Economic Sanctions on US Trade: Andrew Rose's Gravity Model," Policy Briefs PB03-04, Peterson Institute for International Economics.
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    Citations

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    Cited by:

    1. Arne Nagengast & Fernando Rios-Avila & Yoto Yotov, 2024. "The European Single Market and Intra-EU Trade: An Assessment with Heterogeneity-Robust Difference-in-Differences Methods," School of Economics Working Paper Series 2024-5, LeBow College of Business, Drexel University.
    2. Carril-Caccia, Federico, 2025. "The impact of economic sanctions on bilateral mergers and acquisitions," European Journal of Political Economy, Elsevier, vol. 86(C).
    3. Chang,Kuo-I & Hayakawa,Kazunobu, 2025. "Subsidies for Reshoring: Evidence from Taiwan," IDE Discussion Papers 974, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    4. Hendrik Mahlkow & Sonali Chowdhry & Julian Hinz, 2025. "Diversifizieren, nicht reagieren: Europas neuer Weg in der Handelspolitik," WIFO Research Briefs 5, WIFO.
    5. Konstantin Sommer, 2024. "The Chinese waste import ban and the emergence of waste havens within Europe," Tinbergen Institute Discussion Papers 24-053/VI, Tinbergen Institute.
    6. Peter Egger & Constantinos Syropoulos & Yoto V. Yotov, 2024. "Analyzing the effects of economic sanctions: Recent theory, data, and quantification," Review of International Economics, Wiley Blackwell, vol. 32(1), pages 1-11, February.
    7. Ridwan Ah Sheikh & Sunil Kanwar, 2024. "Revisiting the Impact of TRIPS on IPR-intensive Export Flows: Evidence from Staggered Difference-in-Differences," Working papers 351, Centre for Development Economics, Delhi School of Economics.
    8. Korn, Tobias & Stemmler, Henry, 2025. "The persistence of trade relocation from civil conflict," Journal of Development Economics, Elsevier, vol. 172(C).
    9. Ninon Moreau-Kastler, 2025. "Proportional Treatment Effects in Staggered Settings: An Approach for Poisson Pseudo-Maximum Likelihood," Working Papers 031, EU Tax Observatory.
    10. Elisabeth Christen & Gabriel Felbermayr & Hendrik Mahlkow & Joschka Wanner & Martin Mosler & Christoph A. Schaltegger, 2025. "Freihandel, anyone?. Effekte handelspolitischer Szenarien zwischen der Schweiz und den USA," WIFO Studies, WIFO, number 57956826.
    11. Lukas J. Hornung & Nico Stöckmann, 2024. "Protectionism in Disguise? EU Anti-Dumping Measures Targeting PRC Iron and Steel Products," Journal of Industry, Competition and Trade, Springer, vol. 24(1), pages 1-31, December.
    12. Bruno, Randolph Luca & Cipollina, Maria & Dal Bianco, Silvia, 2025. "Trade sanctions and Global Value Chains: A China–South Africa perspective," China Economic Review, Elsevier, vol. 89(C).

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    Keywords

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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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