Reciprocal Trade Agreements in Gravity Models: A Meta-Analysis

Abstract

Over the time a large number of reciprocal preferential trade agreements (RTAs) have been concluded among countries. Recently many studies have used gravity equations in order to estimate the effect of RTAs on trade flows between partners. These studies report very different estimates, since they differ greatly in data sets, sample sizes, and independent variables used in the analysis. So, what is the "true" impact of RTAs? This paper combines, explains, and summarizes a large number of results (1827 estimates included in 85 papers), using a meta-analysis (MA) approach. Notwithstanding quite an high variability, studies consistently find a positive RTAs impact on bilateral trade: the hypothesis that there is no effect of trade agreements on trade is easily and robustly rejected at standard significance levels. We provide pooled estimates, obtained from fixed and random effects models, of the increase in bilateral trade due to RTAs. Finally, information collected on each estimate allows us to test the sensitivity of the results to alternative specifications and differences in the control variables considered.

Which Foreigners are Worth Wooing? A Meta-Analysis of Vertical Spillovers from FDI

“…Following the recent trend in meta-analysis (Disdier & Head, 2008;Doucouliagos & Stanley, 2009;Cipollina & Salvatici, 2010), we use all estimates reported in the studies. If we arbitrarily selected the "best" estimate from each study, we could introduce an additional bias, and if we used the average reported estimate, we would discard a lot of information.…”

“…Such extreme values, most of which come from 5 For example, if the spillover regression is specified in the following form: ln Productivity ijt = e working papers and mimeographs, might lead to volatile results and degrade the graphical analysis. To account for outliers, some other large meta-analyses use the Grubbs test (Disdier & Head, 2008;Cipollina & Salvatici, 2010). But because we use precision to filter out publication bias, outlying values in precision could also invalidate the results.…”

“…Meta-analysis, the quantitative method of research synthesis, has been commonly used in economics for two decades (Card & Krueger, 1995;Smith & Huang, 1995;Ashenfelter et al, 1999). Recent applications of meta-analysis in international economics include Disdier & Head (2008) on the effect of distance on trade, Cipollina & Salvatici (2010) on reciprocal trade agreements, and Havranek (2010) on the trade effect of the euro. Meta-analysis is more than a literature survey: it sheds light on the determinants of the examined phenomenon that are difficult to investigate in primary studies because of data limitations.…”

Regionalism and Its Effects on Iranian Agricultural Exports: The Case of Economic Cooperation Organization

“…In the literature there are numerous studies analyzing the economic impacts of RTAs [8] . RTAs might be expected to increase trade between partners, since cheaper import within the agreement may replace domestic production ("trade creation") or crowed out imports from the rest of the world ("trade diversion") [17,23] .…”

The Role of Institutional Environment in International Trade. The Case of Spanish Regions

“…First, it analyses the effect of TA institutional quality on international trade in a region-to-country dataset and in contrast to mainstream research, we then examine the institutional quality of TAs (Kohl et al 2013) rather than their creation per se (Cipollina, Salvatici 2010, Head, Mayer 2014. Second, it addresses the importance of dealing with within-country heterogeneity in a gravity framework when analysing the factors behind the variation in the IM and in the EM of trade.…”