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Effects of Regional Trade Agreements Using a Static and Dynamic Gravity Equation

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Abstract

This paper evaluates the static effects of preferential agreements between several economic blocs and areas using a dynamic gravity equation. The main aim is to investigate whether regionalism has fostered intra or/and extra blocs international trade, taking into account the existence of heterogeneity over time and across countries and testing whether a dynamic model is preferred to the traditional static specification of the gravity model. This paper argues that the gravity model should be best estimated using Blundell and Bond’s (1998) system-GMM estimator. This procedure remedies some econometric problems such as regressor endogeneity, measurement error and weak instruments, and controls for timeinvariant country-specific effects such as distance or common language.

Suggested Citation

  • Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D. & Nicholas Horsewood, 2006. "Effects of Regional Trade Agreements Using a Static and Dynamic Gravity Equation," Ibero America Institute for Econ. Research (IAI) Discussion Papers 149, Ibero-America Institute for Economic Research.
    • Handle: RePEc:got:iaidps:149
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    File URL: http://www2.vwl.wiso.uni-goettingen.de/ibero/working_paper_neu/DB149.pdf
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    19. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D., 2003. "Augmented gravity model: An empirical application to Mercosur- European trade flows," International Trade 0309019, University Library of Munich, Germany.
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    Cited by:

    1. Campbell, Douglas L., 2011. "Estimating the impact of currency unions on trade using a dynamic gravity framework," MPRA Paper 35531, University Library of Munich, Germany.
    2. 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.
    3. Campbell, Douglas L., 2011. "Estimating the impact of currency unions on trade using a dynamic gravity framework," MPRA Paper 35531, University Library of Munich, Germany.
    4. Levin, Jörgen & Olin, Mikael, 2008. "Trade Policies and Export growth - employment and poverty impact in Tanzania," Working Papers 2008:1, Örebro University, School of Business.

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    More about this item

    Keywords

    Gravity equation; integration; international trade; regionalism;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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