Does distance shape the effect of PTAs on bilateral trade flows? A multilevel approach

Alejandra Martínez Martínez, Silviano Esteve Pérez, Salvador Gil Pareja and Rafael Llorca Vivero
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Alejandra Martínez Martínez: University of Valencia
Silviano Esteve Pérez: University of Valencia and INTECO Research Group
Salvador Gil Pareja: University of Valencia and INTECO Research Group
Rafael Llorca Vivero: University of Valencia and INTECO Research Group
Authors registered in the RePEc Author Service: Silviano Esteve-Pérez and Salvador Gil-Pareja

No 2201, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This research applies the multilevel method to the analysis of trade flows. This paper argues that this methodology could be complementary to the standard gravity equation to address some relevant questions as that pointed out here: the influence of geographical distance on the impact of trade agreements on bilateral trade. Our results suggest that the simplest, most obvious and useful way for nesting country-pairs with international trade data is by distance. Using a sample of 69 countries over the period 1986-2016, we find that the pro-trade effects of Preferential Trade Agreements (PTA) fall with distance to trade partners, while this does not occur with the multilateral system (GATT/WTO). More interesting, the former result only holds for those PTAs involving goods, providing support to the natural trading partner hypothesis in this case, but not for those also including services. In this last case, the impact increases with distance. This suggest that deeper PTAs reduce the cost of distance as a barrier to trade, probably reflecting "cultural" (regulation) distance.

Keywords: Domestic flows; International flows; Multilevel modelling; PTAs; GATT/WTO (search for similar items in EconPapers)
JEL-codes: C1 F14 F15 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-int
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