Consistent Estimates of Regional Blocs' Trade Effects

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. Copyright � 2008 The Author.

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