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Does distance shape the effect of PTAs on bilateral trade flows? A multilevel approach

Author

Listed:
  • Alejandra Martínez Martínez

    (University of Valencia)

  • Silviano Esteve Pérez

    (University of Valencia and INTECO Research Group)

  • Salvador Gil Pareja

    (University of Valencia and INTECO Research Group)

  • Rafael Llorca Vivero

    (University of Valencia and INTECO Research Group)

Abstract

This research applies the multilevel method to the analysis of trade flows. This paper argues that this methodology could be complementary to the standard gravity equation to address some relevant questions as that pointed out here: the influence of geographical distance on the impact of trade agreements on bilateral trade. Our results suggest that the simplest, most obvious and useful way for nesting country-pairs with international trade data is by distance. Using a sample of 69 countries over the period 1986-2016, we find that the pro-trade effects of Preferential Trade Agreements (PTA) fall with distance to trade partners, while this does not occur with the multilateral system (GATT/WTO). More interesting, the former result only holds for those PTAs involving goods, providing support to the natural trading partner hypothesis in this case, but not for those also including services. In this last case, the impact increases with distance. This suggest that deeper PTAs reduce the cost of distance as a barrier to trade, probably reflecting "cultural" (regulation) distance.

Suggested Citation

  • Alejandra Martínez Martínez & Silviano Esteve Pérez & Salvador Gil Pareja & Rafael Llorca Vivero, 2022. "Does distance shape the effect of PTAs on bilateral trade flows? A multilevel approach," Working Papers 2201, Department of Applied Economics II, Universidad de Valencia.
    • Handle: RePEc:eec:wpaper:2201
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    References listed on IDEAS

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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