Heterogeneous Economic Integration Agreement Effects
Scott Baier (),
Jeffrey Bergstrand () and
No 5488, CESifo Working Paper Series from CESifo
Gravity equations have been used for more than 50 years to estimate ex post the partial effects of trade costs on international trade flows, and the well-known - and traditionally presumed exogenous – “trade-cost elasticity” plays a central role in computing general equilibrium trade-flow and welfare effects of trade-cost changes. This paper addresses theoretically and empirically the influence of variable and fixed export costs in explaining the likely heterogeneity in the trade-cost elasticity. We offer four potential contributions. First, for motivation, we show empirically that the heterogeneity in various economic integration agreements’ (EIAs’) partial effects on trade flows far exceeds that explained simply by variation in depth of the trade liberalization. Second, we use standard Armington- and Melitz-type general equilibrium trade models to motivate theoretically the roles of variable trade costs and of fixed and variable export costs, respectively, for explaining (endogenous) heterogeneous partial effects of changes in ad valorem tariff rates on trade flows, as well as on intensive and extensive product margins (with or without network effects and with an untruncated Pareto distribution in the Melitz model). Third, we show empirically that the heterogeneity in EIAs’ partial effects on the intensive margin is explained well just by distance and adjacency, capturing variable natural trade costs; however, the heterogeneity in EIAs’ partial effects on the extensive margin is explained empirically by distance and adjacency, as well as several other cultural and institutional variables, capturing variable and fixed export costs. Fourth, we show that such estimated heterogeneous effects can predict 83-94 percent of economic welfare effects of EIAs and can potentially predict ex ante a potential EIA’s partial trade-flow effect and general equilibrium welfare effect.
Keywords: international trade; economic integration agreements; gravity equation (search for similar items in EconPapers)
JEL-codes: F10 F12 F13 F14 F15 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5488
Access Statistics for this paper
More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().