The Trade Effects of Endogenous Preferential Trade Agreements

49 Pages Posted: 25 Nov 2010

See all articles by Peter H. Egger

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment; Ludwig-Maximilians University of Munich; CESifo (Center for Economic Studies and Ifo Institute for Economic Research

Mario Larch

University of Bayreuth - Faculty of Law, Business and Economics; University of Bayreuth; CESifo; Ifo Institute for Economic Research; GEP at the University of Nottingham; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Kevin E. Staub

University of Melbourne - Department of Economics; IZA Institute of Labor Economics

Rainer Winkelmann

University of Zurich - Statistics and Empirical Economic Research; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: November 23, 2010

Abstract

Recent work by Anderson and van Wincoop (2003) establishes an empirical modelling strategy which takes full account of the structural, non-(log-)linear impact of trade barriers on trade in new trade theory models. Structural new trade theory models have never been used to evaluate and quantify the role of endogenous preferential trade agreement (PTA) membership for trade in a way which is consistent with general equilibrium. Apart from this gap, the present paper aims at delivering an empirical model which takes into account both that preferential trade agreement membership is endogenous and that the world matrix of bilateral trade flows contains numerous zero entries. These features are treated in an encompassing way by means of (possibly two-part) Poisson pseudo-maximum likelihood estimation with endogenous binary indicator variables in the empirical model.

Keywords: gravity model, endogenous preferential trade agreement membership, Poisson pseudo-maximum likelihood estimation with endogenous binary indicator variables

JEL Classification: F14, F15

Suggested Citation

Egger, Peter H. and Larch, Mario and Staub, Kevin E. and Winkelmann, Rainer, The Trade Effects of Endogenous Preferential Trade Agreements (November 23, 2010). CESifo Working Paper Series No. 3253, Available at SSRN: https://ssrn.com/abstract=1713670

Peter H. Egger (Contact Author)

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment ( email )

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Mario Larch

University of Bayreuth - Faculty of Law, Business and Economics ( email )

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Kevin E. Staub

University of Melbourne - Department of Economics ( email )

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Rainer Winkelmann

University of Zurich - Statistics and Empirical Economic Research ( email )

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