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Consistent Estimates of Regional Blocs' Trade Effects

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  • Yener Kandogan

Abstract

This paper builds upon Feenstra (2002) to obtain consistent estimates of trade effects of regional blocs by adding bilateral effects to the gravity equation and analyzing its variation across blocs of different intensity. The results are then compared across different gravity equations used in the literature only to observe significant variation in sign, magnitude, and significance. The consequent equation shows that the effect is positive for economics cooperation agreements and preferential trade agreements, but free‐trade agreements do not have a significant incremental effect. While customs unions have a positive incremental effect over blocs of lower intensity, the incremental effect is mixed for monetary unions, and negative for economic areas and full integrations. Furthermore, the effect varies with the duration and degree of implementation as well as the coverage of blocs. Lastly, changes in trade effects of the European blocs across time observed and policy implications are discussed.

Suggested Citation

  • Yener Kandogan, 2008. "Consistent Estimates of Regional Blocs' Trade Effects," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 301-314, May.
    • Handle: RePEc:bla:reviec:v:16:y:2008:i:2:p:301-314
    DOI: 10.1111/j.1467-9396.2008.00736.x
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    References listed on IDEAS

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    1. Jeffrey A. Frankel, 1998. "The Regionalization of the World Economy," NBER Books, National Bureau of Economic Research, Inc, number fran98-1.
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    7. Anne O. Krueger, 1999. "Trade Creation and Trade Diversion Under NAFTA," NBER Working Papers 7429, National Bureau of Economic Research, Inc.
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