We develop a novel two stage methodology that allows us to study the empirical determinants of the ex post effects of past free trade agreements (FTAs) as well as obtain ex ante predictions for the ...effects of future FTAs. We first identify 908 unique estimates of the effects of FTAs on different trading pairs for the years 1986–2006. We then employ these estimates as our dependent variable in a “second stage” analysis characterizing the heterogeneity in these effects. Interestingly, most of this heterogeneity (∼2/3) occurs within FTAs (rather than across different FTAs), with asymmetric effects within pairs (on exports vs. imports) also playing an important role. Our second stage analysis provides several intuitive explanations behind these variations. Even within the same agreement, FTA effects are weaker for more distant pairs and for pairs with otherwise high levels of ex ante trade frictions. The effects of new FTAs are similarly weaker for pairs with existing agreements already in place. In addition, we are able to relate asymmetries in FTA effects to each country's ability to influence the other's terms of trade. Out-of-sample predictions incorporating these insights enable us to predict direction-specific effects of future FTAs between any pair of countries. A simulation of the general equilibrium effects of TTIP demonstrates the significance of our methods.
The gravity equation is the workhorse model of trade. Despite solid theoretical foundations and clear gains from theory‐consistent policy analysis, there are still gaps between gravity theory and ...empirics. This paper focuses on domestic trade flows, and I argue that there are significant benefits from adhering to theory by estimating gravity equations with domestic (in addition to international) trade flows. I review the related literature and synthesize 15 arguments for using domestic trade flows in gravity estimations. The analysis reveals the need for further theory contributions and new data developments, and points to opportunities for more policy applications.
The global sanctions data base Felbermayr, Gabriel; Kirilakha, Aleksandra; Syropoulos, Constantinos ...
European economic review,
10/2020, Volume:
129
Journal Article
Peer reviewed
This article introduces the Global Sanctions Data Base (GSDB), a new dataset of economic sanctions that covers all bilateral, multilateral, and plurilateral sanctions in the world during the ...1950–2016 period across three dimensions: type, political objective, and extent of success. The GSDB features by far the most cases amongst data bases that focus on effective sanctions (i.e., excluding threats) and is particularly useful for analysis of bilateral international transactional data (such as trade flows). We highlight five important stylized facts: (i) sanctions are increasingly used over time; (ii) European countries are the most frequent users and African countries the most frequent targets; (iii) sanctions are becoming more diverse, with the share of trade sanctions falling and that of financial or travel sanctions rising; (iv) the main objectives of sanctions are increasingly related to democracy or human rights; (v) the success rate of sanctions has gone up until 1995 and fallen since then. Using state-of-the-art gravity modeling, we highlight the usefulness of the GSDB in the realm of international trade. Trade sanctions have a negative but heterogeneous effect on trade, which is most pronounced for complete bilateral sanctions, followed by complete export sanctions.
This paper infers the terms of trade effects of free trade agreements (FTAs) implemented in the 1990s. We estimate large FTA effects on bilateral trade volume in 2 digit manufacturing goods from ...1990–2002, using panel data gravity methods to resolve two way causality. The terms of trade changes implied by these volume effects are deduced for 40 countries plus a rest-of-the-world aggregate using an endowments general equilibrium model. Some countries gain over 5% of real manufacturing income, some lose less than 0.3%. Global efficiency of manufactures trade rises 0.9% based on a distance function measure of iceberg melting.
•We infer the terms of trade effects of free trade agreements implemented 1990–2002.•Panel data methods resolve two way causality between trade and FTAs.•Some members gain over 5% of real manufacturing income.•Some non-members lose less than 0.3%.•Global efficiency rises 0.9% using novel distance function measure.
We propose a simple method to identify the effects of unilateral and non-discriminatory trade policies on bilateral trade within a theoretically consistent empirical gravity model. Specifically, we ...argue that structural gravity estimations should be performed with data that include not only international trade flows but also intra-national trade flows. The use of intra-national sales allows identification of the effects of non-discriminatory trade policies such as most favoured nation tariffs, even in the presence of exporter and importer fixed effects. A byproduct of our approach is that it can be used to recover estimates of the trade elasticity, a key parameter for quantitative trade models. We demonstrate the effectiveness of our techniques in the case of most favoured nation tariffs and “time to export” as representative non-discriminatory determinants of trade on the importer and on the exporter side, respectively. Our methods can be extended to quantify the impact on trade of any country-specific characteristics as well as any non-trade policies.
For a long time globalization could be seen everywhere but in gravity estimates. We offer evidence how globalization affects manufacturing trade over the period 1986–2006 and show that, on average, ...the effect of distance has fallen whereas the effects of proximity and regional trade agreements have increased over time. We also document substantial cross-country heterogeneity in the extent to which distance elasticities have changed. Countries in the middle of the per-capita income distribution have seen the steepest fall in distance coefficients. At the same time, distance as a trade friction has not lost its bite for a number of low income countries, which may jeopardize their integration into global markets. We present suggestive evidence that the heterogeneous change in distance elasticities is related to secular shifts in the composition of exports.
•We offer solutions to the ‘distance puzzle’ and the ‘missing globalization puzzle’ in trade.•On average, the effect of distance on trade fell by 10% between 1986 and 2006.•The effects of globalization on trade vary widely across the 69 nations in our sample.•The relationship between the gains from globalization and income is U-shaped.•Globalization benefited middle income countries the most.
Bilateral trade balances often play a controversial role in the international trade policy debate. They may reflect hidden and asymmetric (i.e., unfair) trade barriers and/or aggregate trade ...imbalances due to macroeconomic factors. Several studies give credence to the former argument and argue that standard gravity forces fail to explain observed bilateral trade balances, dubbing this “The Mystery of the Excess Trade Balances”. We solve the mystery and show that the gravity model explains bilateral trade balances well. Our analysis suggests that, on average, there is little room for trade cost asymmetries to lead to bilateral trade imbalances except in certain sectors (e.g., Mining and Services), where the modeling of the direct bilateral trade costs in the gravity model can be improved. We also uncover a new property of the structural multilateral resistances as asymmetric trade costs. This is exactly what solves the mystery.
Using a novel common econometric specification, we examine the measurement of three important effects in international trade that historically have been addressed largely separately: the (partial) ...effects on trade of economic integration agreements, international borders, and bilateral distance. First, recent studies focusing on precise and unbiased estimates of effects of economic integration agreements (EIAs) on members׳ trade may be biased upward owing to inadequate control for time-varying exogenous unobservable country-pair-specific changes in bilateral export costs (possibly decreasing the costs of international relative to intranational trade); we find evidence of this bias using a properly specified gravity equation. Second, our novel methodology yields statistically significant estimates of the declining effect of “international borders” on world trade, now accounting for endogenous EIA formations and unobserved country-pair heterogeneity in initial levels. Third, we confirm recent evidence providing a solution to the “distance-elasticity puzzle,” but show that these estimates of the declining effect of distance on international trade are biased upward by not accounting for endogenous EIA formations and unobserved country-pair heterogeneity. We conclude our study with numerical general equilibrium comparative statics illustrating a substantive difference on trade effects of EIAs with and without allowance for the declining effects of international borders on world trade.
Economic Sanctions Morgan, T. Clifton; Syropoulos, Constantinos; Yotov, Yoto V.
The Journal of economic perspectives,
2023, Volume:
37, Issue:
1
Journal Article
Peer reviewed
Open access
Taking an interdisciplinary perspective, we examine the evolution of economic sanctions in the post-World War II era and reflect on the lessons that could be drawn from their features and patterns of ...use. We observe that, during this time, there has been a remarkable increase in the use of sanctions as an instrument of foreign policy. We classify this period into four 'eras' and discuss, in this context, how the evolution of sanctions may be linked to salient features of the contemporaneous international political and economic orders. Our review of the related literatures in economics and political science suggests, among other things, that our understanding of sanction processes could be significantly advanced by marrying these perspectives. We conclude by identifying several questions and challenges, and by discussing how interdisciplinary research could address them.
The effects of intra-regional, inter-regional and international frictions on the trade flows of Canada’s provinces are disentangled by gravity model techniques. Unexplained Trade Barriers (UTBs) are ...the difference between inter-provincial trade barriers inferred from pair fixed effects and from bilateral distance and contiguity. The estimates reveal large intra-national trade costs and UTBs that vary significantly across Canada’s provinces. Decomposition of UTBs into relative border effects and a systematic residual UTB is based on a novel Cobb–Douglas aggregator of intra-provincial and pure inter-provincial trade costs. Variation of both components across provinces is big.
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