Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/101013
Authors: 
Baier, Scott Leonard
Bergstrand, Jeffrey H.
Editors: 
Baier, Scott Leonard
Bergstrand, Jeffrey H.
Year of Publication: 
2005
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2005-3
Abstract: 
For more than forty years, the gravity equation has been a workhorse for cross-country empirical analyses of international trade flows and, in particular, the effects of free trade agreements (FTAs) on trade flows. However, the gravity equation is subject to the same econometric critique as earlier cross-industry studies of U.S. tariff and nontariff barriers and U.S. multilateral imports: Trade policy is not an exogenous variable. The authors address econometrically the endogeneity of FTAs using instrumental-variable (IV) techniques, control-function (CF) techniques, and panel-data techniques; IV and CF approaches do not adjust for endogeneity well, but a panel-data approach does. Accounting econometrically for the FTA variable’s endogeneity yields striking empirical results: The effect of FTAs on trade flows is quintupled.
Subjects: 
international trade
free trade agreements
gravity equation
JEL: 
F10
F13
Document Type: 
Working Paper

Files in This Item:
File
Size
281.29 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.