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Exploring the Impact of Economic Integration Agreements Through Extreme Bounds Analysis

Byungyul Park and John Beghin

No 303871, Staff Papers from University of Nebraska-Lincoln, Department of Agricultural Economics

Abstract: This paper provides an empirical strategy guided by the data to estimate the dynamics and effects of Economic Integration Agreements (EIAs) on trade flows. The strategy uses Extreme Bounds Analysis (EBA) to guide the choice of lags and leads in the effects without researchers’ discretion involved. We show that arbitrarily selected year intervals and starting year can result in non-robust estimates of transitional dynamics of the effects of EIAs on trade flows. The empirical strategy follows two steps: EBA firstly sifts lags and leads of EIAs robustly related to trade flows from candidates, then these are included in the gravity equation to estimate the effects of EIAs on trade. We find that various lags and leads are robustly and positively related to trade flows, and the lag and lead structure depends on the level of integration. Our results show that EIAs have a long-term effect of 64% on trade flows. Under the richer lag and lead structure, deep-integration agreements beyond the level of free trade agreements have a much higher impact on trade flows than free trade agreements do (112% versus 33%). The estimates of effects of EIAs obtained from EBA-based estimation have a smaller contemporaneous effect and larger phased-in effects compared to previous studies relying on the subjective choices of year intervals while similar results are observed with the decomposed EIAs.

Keywords: International Relations/Trade; Research Methods/ Statistical Methods (search for similar items in EconPapers)
Pages: 31
Date: 2020-10-28
New Economics Papers: this item is included in nep-int
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Exploring the impact of economic integration agreements through extreme bounds analysis (2023) Downloads
Working Paper: Exploring the Impact of Economic Integration Agreements Through Extreme Bounds Analysis (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nbaesp:303871

DOI: 10.22004/ag.econ.303871

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