Controlling for Heterogeneity in Gravity Models of Trade and Integration

Cheng, I-Hui; Wall, Howard J.

doi:10.20955/r.87.49-64

Cited by 162 publications

(85 citation statements)

References 16 publications

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“…Since the data begin in 1962, we collected observations for every 5 years from 1965 to 2010 to construct the panel data, following and Baier et al (2014). 12 The rationale for 5-year intervals follows from Cheng and Wall (2005) and Wooldridge (2000). Cheng and Wall (2005, p. 8) notes that "Fixed-effects estimations are sometimes criticised when applied to data pooled over consecutive years on the grounds that dependent and independent variables cannot fully adjust in a single year's time."…”

Section: Datamentioning

confidence: 99%

Putting Canada in the penalty box: Trade and welfare effects of eliminating North American Free Trade Agreement

2019

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Three years ago, very few economists would have imagined that one of the newest and fastest growing research areas in international trade is the use of quantitative trade models to estimate the economic welfare losses from dissolutions of major countries' economic integration agreements (EIAs). In 2016, "Brexit" was passed in a UK referendum. Moreover, in 2019, the existence of the entire North American Free Trade Agreement (NAFTA) is at risk if the US withdraws—a threat President Trump has made if the proposed US–Mexico–Canada Agreement is not passed by the US Congress. We use state‐of‐the‐art econometric methodology to estimate the partial (average treatment) effects on international trade flows of the six major types of EIAs. Armed with precise estimates of the average treatment effect for a free trade agreement, we examine the general equilibrium trade and welfare effects of the elimination of NAFTA (and for robustness US withdrawal only). Although all the member countries' standards of living fall, surprisingly the smallest economy, Mexico, is not the biggest loser; Canada is the biggest loser. Canada's welfare (per capita income) loss of 2.11% is nearly two times that of Mexico's loss of 1.15% and is nearly eight times the US' loss of 0.27%. The simulations will illustrate the important influence of trade costs—international and intranational—in contributing to the gains (or losses) from an EIA's formation (or elimination).

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Section: Datamentioning

confidence: 99%

Putting Canada in the penalty box: Trade and welfare effects of eliminating North American Free Trade Agreement

2019

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“…In this context, Deardorff (1998) pointed out that the gravity model is compatible with a wide range of business models, including the Heckscher-Ohlin trade which is hampered with or without friction. The recent wave of theoretical studies has also led Cheng and Downloaded by [Selcuk Universitesi] at 16:41 05 February 2015 Wall (2005) to state that the gravity equation has gone from an embarrassment of poverty theoretical foundations to an embarrassment of wealth.…”

Section: Brief Literature Reviewmentioning

confidence: 99%

Trade creation and diversion effects in the Mediterranean area: Econometric analysis by gravity model

Kahouli

Maktouf

2014

The Journal of International Trade & Economic Development

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Since the early 1990s, the world has seen a proliferation of free trade agreements (FTAs). A major goal of free trade is to develop trade between its signatories. The gravity model is used to analyze the bilateral trade data against the variables of the relative size of the pair of countries involved in trade, distance, common border and language and dummies for each of the FTAs. This article focuses on the studying of the influence of the FTAs in the Mediterranean countries in which we integrate the role of the regional dummy EU-15, Economic and Monetary Union (eurozone), the Arab Maghreb Union and AGADIR Agreement (FTA between Jordan, Egypt, Tunisia and Morocco) in trade flows. In addition, this work aims to detect the impact of the global financial crisis on export flows between the FTAs in the Mediterranean region. The use of regional variables in gravity models designed to determine whether the FTAs contribute to the creation or trade diversion. This study examines a cross section and panel (static and dynamic) of 27 countries for 1980-2011. The results show the existence of a strong relationship between the factors of FTAs and trade flows.

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“…Ainsi par exemple, lorsque les exportations d'un pays augmentent plus rapidement que son PIB, cette particularité pourrait s'interpréter comme un effet spécifique à ce pays et non comme un effet bilatéral. Prolongeant cette analyse, Cheng et Wall (2005) ont montré que les effets bilatéraux sont préférables aux effets individuels. C'est cette dernière proposition qui est retenue.…”

Section: Le Modèle De Gravité : Spécification Empirique Et Justificatunclassified

Évaluation et analyse du potentiel commercial dans la Communauté économique et monétaire de l’Afrique centrale (CEMAC)

Avom

Mignamissi

2014

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L’objectif de cet article est d’évaluer et d’analyser le potentiel commercial des pays de la CEMAC selon l’approche de l’intégration économique par le marché. Pour y parvenir, nous adoptons une démarche en plusieurs étapes. Après une analyse des faits stylisés, un modèle de gravité est appliqué et estimé selon plusieurs variantes pour évaluer les déterminants des échanges commerciaux. Les résultats obtenus sont ensuite utilisés pour le calcul du potentiel commercial communautaire. Nous parvenons aux principaux résultats suivants : (i) les faits stylisés montrent que les pays de la CEMAC sont faiblement intégrés commercialement, extravertis et hétérogènes; (ii) les coefficients des variables traditionnelles du modèle de gravité sont globalement de signes attendus; (iii) le faible niveau de revenu par habitant et surtout la faible diversification productive réduisent fortement le potentiel commercial dans la sous-région; (iv) des épisodes de création d’échanges, quoiqu’à un niveau faible, apparaissent, notamment dans les flux bilatéraux du Cameroun avec les autres États membres.This paper aims to evaluate and analyze trade potential of Monetary and Economic Community of Central Africa’s countries (MECCA) in the light of market integration theory. Gradually, we analyze stylized facts of member’s countries trade and estimate an augmented gravity model to evaluate the bilateral trade patterns in the subregion. The results obtained are used to compute the trade potential index in the community. The study found four major results: (i) the stylized facts show heterogeneity and a low level of integration in the subregion; (ii) the coefficients of the traditional variables of the gravity model globally keep their theoretical signs; (iii) the poor level of GDP per capita and the lack of diversification of productive structures are the main factors reducing trade potential in the sub-region; (iv) even though weak, there is some trade creation episodes, notably in the bilateral flows of Cameroon and others member’s countries

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Controlling for Heterogeneity in Gravity Models of Trade and Integration

Cited by 162 publications

References 16 publications

Putting Canada in the penalty box: Trade and welfare effects of eliminating North American Free Trade Agreement

Putting Canada in the penalty box: Trade and welfare effects of eliminating North American Free Trade Agreement

Trade creation and diversion effects in the Mediterranean area: Econometric analysis by gravity model

Évaluation et analyse du potentiel commercial dans la Communauté économique et monétaire de l’Afrique centrale (CEMAC)

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