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Gravity-model Estimation with Time-interval Data: Revisiting the Impact of Free Trade Agreements

Author

Listed:
  • Egger, Peter

    (EggerDepartment of Management, Technology and Economics, KOF Swiss Economic Institute)

  • Larch, Mario

    (University of Bayreuth)

  • Yotov, Yoto

    (School of Economics Drexel University LeBow College of Business)

Abstract

We challenge the common practice of estimating gravity equations with time-interval data in order to capture dynamic-adjustment effects to trade-policy changes. Instead, we point to a series of advantages of using consecutive-year data recognizing dynamic-adjustment effects. Our analysis reveals that, relative to time-interval data, the proposed approach avoids downward-biased effect estimates due to the distribution of trade-policy events during an event window as well as due to anticipation (pre-interval) and delayed (post-interval) effects, and it improves the efficiency of effect estimates due to the use of more data.

Suggested Citation

  • Egger, Peter & Larch, Mario & Yotov, Yoto, 2020. "Gravity-model Estimation with Time-interval Data: Revisiting the Impact of Free Trade Agreements," School of Economics Working Paper Series 2020-11, LeBow College of Business, Drexel University.
  • Handle: RePEc:ris:drxlwp:2020_011
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    References listed on IDEAS

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    1. Anderson, James & Larch, Mario & Yotov, Yoto, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," School of Economics Working Paper Series 2015-2, LeBow College of Business, Drexel University.
    2. 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.
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    7. María Pía Olivero & Yoto V. Yotov, 2012. "Dynamic gravity: endogenous country size and asset accumulation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(1), pages 64-92, February.
    8. Bergstrand, Jeffrey H. & Larch, Mario & Yotov, Yoto V., 2015. "Economic integration agreements, border effects, and distance elasticities in the gravity equation," European Economic Review, Elsevier, vol. 78(C), pages 307-327.
    9. Egger, Peter H. & Nigai, Sergey, 2015. "Structural gravity with dummies only: Constrained ANOVA-type estimation of gravity models," Journal of International Economics, Elsevier, vol. 97(1), pages 86-99.
    10. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    11. Jonathan Eaton & Samuel Kortum & Brent Neiman & John Romalis, 2016. "Trade and the Global Recession," American Economic Review, American Economic Association, vol. 106(11), pages 3401-3438, November.
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    Cited by:

    1. Silviano Esteve-Pérez & Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2021. "Has the Euro paid off? A study of the trade-induced welfare effects of the EMU," Working Papers 2103, Department of Applied Economics II, Universidad de Valencia.
    2. Alen Mulabdic & Lorenzo Rotunno, 2021. "Trade barriers in government procurement," Working Papers halshs-03191482, HAL.
    3. Harald Oberhofer & Michael Pfaffermayr & Yvonne Wolfmayr, 2021. "Die Auswirkungen des Brexit auf Österreichs Wirtschaft," WIFO Studies, WIFO, number 66782, June.
    4. Larch, Mario & Shikher, Serge & Syropoulos, Costas & Yotov, Yoto, 2021. "Quantifying the Impact of Economic Sanctions on International Trade in the Energy and Mining Sectors," School of Economics Working Paper Series 2021-9, LeBow College of Business, Drexel University.
    5. Swati Dhingra & Rebecca Freeman & Hanwei Huang, 2021. "The impact of non-tariff barriers on trade and welfare," CEP Discussion Papers dp1742, Centre for Economic Performance, LSE.

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    More about this item

    Keywords

    Structural Gravity; Trade Policy; Free Trade Agreements; Interval Data;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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