Details

Autor(en) / Beteiligte

• Baier, Scott L.
• Bergstrand, Jeffrey H.

Titel

Do free trade agreements actually increase members' international trade?

Ist Teil von

• Journal of international economics, 2007-03, Vol.71 (1), p.72-95

Ort / Verlag

Amsterdam: Elsevier B.V

Erscheinungsjahr

2007

Quelle

Alma/SFX Local Collection

Beschreibungen/Notizen

• For over 40 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. We address econometrically the endogeneity of FTAs. Although instrumental-variable and control-function approaches do not adjust for endogeneity well, a panel approach does. Accounting econometrically for the FTA variable's endogeneity yields striking empirical results: the effect of FTAs on trade flows is quintupled. We find that, on average, an FTA approximately doubles two members' bilateral trade after 10 years.