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Do We Really Need Domestic Trade Flows to Evaluate the Impact of Trade Agreements? A Comment

Author

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  • Xenia Matschke
  • Juan Rene Rojas Rodriguez

Abstract

Campos et al. (2021) (Economics Letters) show that including domestic trade flows in the gravity model is important for estimating the effect of trade agreements (TAs), regardless of how these flows are measured. Without domestic trade flows, TA effects are small, negative, and statistically insignificant. The opposite holds once domestic flows are included. Using the Campos et al. (2021) data, we show that their results are caused by the big size difference between international trade and domestic trade flows in combination with the Poisson Pseudo Maximum Likelihood (PPML) estimator. We find that the TA variable is not statistically significant in the Campos et al. (2021) data.

Suggested Citation

  • Xenia Matschke & Juan Rene Rojas Rodriguez, 2025. "Do We Really Need Domestic Trade Flows to Evaluate the Impact of Trade Agreements? A Comment," Research Papers in Economics 2025-11, University of Trier, Department of Economics.
    • Handle: RePEc:trr:wpaper:202511
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    References listed on IDEAS

    as
    1. Mario Larch & Joschka Wanner & Yoto V. Yotov & Thomas Zylkin, 2019. "Currency Unions and Trade: A PPML Re‐assessment with High‐dimensional Fixed Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(3), pages 487-510, June.
    2. Yoto V. Yotov, 2022. "On the role of domestic trade flows for estimating the gravity model of trade," Contemporary Economic Policy, Western Economic Association International, vol. 40(3), pages 526-540, July.
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    4. Ayman El Dahrawy Sánchez‐Albornoz & Jacopo Timini, 2021. "Trade agreements and Latin American trade (creation and diversion) and welfare," The World Economy, Wiley Blackwell, vol. 44(7), pages 2004-2040, July.
    5. Campos, Rodolfo G. & Timini, Jacopo & Vidal, Elena, 2021. "Structural gravity and trade agreements: Does the measurement of domestic trade matter?," Economics Letters, Elsevier, vol. 208(C).
    6. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Theory," Econometrica, Econometric Society, vol. 52(3), pages 681-700, May.
    7. 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.
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    JEL classification:

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

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