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On the Trade and Price Effects of Preferential Trade Agreements

  • Falvey, Rod
  • Foster-McGregor, Neil

In this paper we extend recent work using the Gravity Model to estimate the trade and price effects of Preferential Trading Arrangements (PTAs), by explicitly taking into account the extent of the preferential access being provided by the importer. This involves specifying a trade model, deriving appropriate PTA variables, appending them to a gravity-type equation and estimating it. We find that relying on the estimated coefficient on a PTA dummy variable overestimates the trade creating effects of PTAs. We also use average tariff and estimated trade cost data to calculate the effects of the PTAs in force in 2006 on trade flows. We show that ignoring the general equilibrium effects of PTA membership greatly distorts the distribution of outcomes.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/25885/1/070ccesDP_51.pdf
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Paper provided by Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University in its series CCES Discussion Paper Series with number 51.

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Length: 29 p.
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:hit:ccesdp:51
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  1. World Bank, 2008. "World Development Indicators 2008," World Bank Publications, The World Bank, number 11855.
  2. Baldwin, Richard & Jaimovich, Dany, 2012. "Are Free Trade Agreements contagious?," Journal of International Economics, Elsevier, vol. 88(1), pages 1-16.
  3. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
  4. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
  5. Peter Egger & Mario Larch & Kevin E. Staub & Rainer Winkelmann, 2010. "The Trade Effects of Endogenous Preferential Trade Agreements," CESifo Working Paper Series 3253, CESifo Group Munich.
  6. James E. Anderson & Yoto V. Yotov, 2011. "Terms of Trade and Global Efficiency Effects of Free Trade Agreements, 1990-2002," NBER Working Papers 17003, National Bureau of Economic Research, Inc.
  7. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  8. URATA Shujiro & OKABE Misa, 2007. "The Impacts of Free Trade Agreements on Trade Flows: An Application of the Gravity Model Approach," Discussion papers 07052, Research Institute of Economy, Trade and Industry (RIETI).
  9. Carrere, Celine, 2006. "Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model," European Economic Review, Elsevier, vol. 50(2), pages 223-247, February.
  10. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  11. Cipollina, Maria & Salvatici, Luca, 2007. "Reciprocal trade agreements in gravity models: a meta-analysis," Economics & Statistics Discussion Papers esdp07035, University of Molise, Dept. EGSeI.
  12. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
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