IDEAS home Printed from https://ideas.repec.org/p/got/iaidps/149.html
   My bibliography  Save this paper

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

Author

Listed:

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
    as

    Download full text from publisher

    File URL: http://www2.vwl.wiso.uni-goettingen.de/ibero/working_paper_neu/DB149.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tamim Bayoumi & Barry Eichengreen, 1997. "Is Regionalism Simply a Diversion? Evidence from the Evolution of the EC and EFTA," NBER Chapters, in: Regionalism versus Multilateral Trade Arrangements, pages 141-168, National Bureau of Economic Research, Inc.
    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.
    3. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    4. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, vol. 87(Jan), pages 49-63.
    5. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    6. Alan V. Deardorff, 2011. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 24, pages 267-293, World Scientific Publishing Co. Pte. Ltd..
    7. Soloaga, Isidro & Alan Wintersb, L., 2001. "Regionalism in the nineties: what effect on trade?," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 1-29, March.
    8. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-153, February.
    9. Endoh, Masahiro, 1999. "The transition of postwar Asia-Pacific trade relations," Journal of Asian Economics, Elsevier, vol. 10(4), pages 571-589.
    10. Martinez-Zarzoso, Inmaculada & Nowak-Lehmann, Felicitas, 2003. "Augmented Gravity Model: An Empirical Application to Mercosur-European Union Trade Flows," Journal of Applied Economics, Universidad del CEMA, vol. 6(2), pages 1-26, November.
    11. Bougheas, Spiros & Demetriades, Panicos O. & Morgenroth, Edgar L. W., 1999. "Infrastructure, transport costs and trade," Journal of International Economics, Elsevier, vol. 47(1), pages 169-189, February.
    12. Fritz Breuss & Peter Egger, 1999. "How Reliable Are Estimations of East-West Trade Potentials Based on Cross-Section Gravity Analyses?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(2), pages 81-94, June.
    13. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
    14. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
    15. Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, vol. 66(1), pages 25-31, January.
    16. Mr. Rodolphe Blavy, 2001. "Trade in the Mashreq: An Empirical Examination," IMF Working Papers 2001/163, International Monetary Fund.
    17. Takatoshi Ito & Anne O. Krueger, 1997. "Regionalism versus Multilateral Trade Arrangements," NBER Books, National Bureau of Economic Research, Inc, number ito_97-1.
    18. Peter Egger & Michael Pfaffermayr, 2003. "The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects," Empirical Economics, Springer, vol. 28(3), pages 571-580, July.
    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.
    20. Peter Egger, 2004. "Estimating regional trading bloc effects with panel data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(1), pages 151-166, March.
    21. 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.
    22. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. 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.
    4. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martínez-Zarzoso, Inmaculada & Felicitas, Nowak-Lehmann D. & Horsewood, Nicholas, 2009. "Are regional trading agreements beneficial?: Static and dynamic panel gravity models," The North American Journal of Economics and Finance, Elsevier, vol. 20(1), pages 46-65, March.
    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. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann, 2003. "Augmented Gravity Model: An Empirical Application to Mercosur-European Union Trade Flows," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 291-316, November.
    4. NOWAK-LEHMANN D., Felicitas & HERZER, Dierk & VOLLMER, Sebastian, 2007. "The Free Trade Agreement Between Chile And The Eu: Its Potential Impact On Chile’S Export Industry," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
    5. Inmaculada Martinez-Zarzoso, 2003. "Gravity model: An application to trade between regional blocs," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 31(2), pages 174-187, June.
    6. Ghulam Shabbir & Amjad Naveed & Muhammad Ali Khan & Shabib Haider Syed, 2022. "Does Peace Promote Bilateral Trade Flows? An Economic Analysis of Panel Data in Asian Perspective," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(1), pages 143-158, March.
    7. repec:got:cegedp:43 is not listed on IDEAS
    8. Nowak-Lehmann D., Felicitas & Herzer, Dierk & Martínez-Zarzoso, Inmaculada & Vollmer, Sebastian, 2005. "Turkey and the Ankara Treaty of 1963: What can Trade Integration Do for Turkish Exports," University of Göttingen Working Papers in Economics 43, University of Goettingen, Department of Economics.
    9. Michele FRATIANNI & Chang HOON HO, 2007. "On the Relationship Between RTA Expansion and Openness," Working Papers 288, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    10. Yongcheol Shin & Laura Serlenga, 2007. "Gravity models of intra-EU trade: application of the CCEP-HT estimation in heterogeneous panels with unobserved common time-specific factors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 361-381.
    11. Michele Fratianni & Chang Hoon Oh, 2009. "Expanding RTAs, trade flows, and the multinational enterprise," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(7), pages 1206-1227, September.
    12. Estrella Gómez-Herrera, 2013. "Comparing alternative methods to estimate gravity models of bilateral trade," Empirical Economics, Springer, vol. 44(3), pages 1087-1111, June.
    13. 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.
    14. Michele Fratianni & Francesco Marchionne, 2008. "Heterogeneity In Trade Costs," Economics Bulletin, AccessEcon, vol. 6(48), pages 1-14.
    15. Maria Cipollina & Luca Salvatici, 2010. "Reciprocal Trade Agreements in Gravity Models: A Meta‐Analysis," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 63-80, February.
    16. Mustafizur Rahman & Wasel Bin Shadat & Narayan Chandra Das, 2006. "Trade Potential in SAFTA: An Application of Augmented Gravity Model," CPD Working Paper 61, Centre for Policy Dialogue (CPD).
    17. repec:ebl:ecbull:v:6:y:2008:i:48:p:1-14 is not listed on IDEAS
    18. Muhammad Ullah & Kazuo Inaba, 2012. "Impact of RTA and PTA on Bangladesh’s Export: Application of a Gravity Model," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 445-460, December.
    19. Dinda, Soumyananda, 2013. "Climate Change Creates Trade Opportunity in India," MPRA Paper 50636, University Library of Munich, Germany, revised 14 Oct 2013.
    20. Kareem, Fatima Olanike & Martinez-Zarzoso, Inmaculada & Brümmer, Bernhard, 2016. "Fitting the Gravity Model when Zero Trade Flows are Frequent: a Comparison of Estimation Techniques using Africa's Trade Data," GlobalFood Discussion Papers 230588, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    21. Simone Juhasz Silva & Douglas Nelson, 2012. "Does Aid Cause Trade? Evidence from an Asymmetric Gravity Model," The World Economy, Wiley Blackwell, vol. 35(5), pages 545-577, May.
    22. Eicher, Theo S. & Henn, Christian, 2011. "In search of WTO trade effects: Preferential trade agreements promote trade strongly, but unevenly," Journal of International Economics, Elsevier, vol. 83(2), pages 137-153, March.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:got:iaidps:149. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sabine Jaep (email available below). General contact details of provider: https://edirc.repec.org/data/ibgoede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.