Specialisation : pro and anti-globalizing 1990-2002

Specialization alters the incidence of trade costs to buyers and sellers, with pro-and anti-globalizing effects on 76 countries from 1990-2002. The structural gravity model yields measures of Constructed Home Bias and the Total Factor Productivity effect of changing incidence. A bit more than half the world's countries experience declining constructed home bias and rising real output while the remainder of countries experi- ence rising home bias and falling real output. The effects are big for the outliers. A novel test of the structural gravity model restrictions shows it comes very close in an economic sense

Gold Standard Gravity

This paper provides striking confirmation of the restrictions of the structural gravity model of trade. Structural forces predicted by theory explain 95% of the variation of the fixed effects used to control for them in the recent gravity literature, fixed effects that in principle could reflect other forces. This validation opens avenues to inferring unobserved sectoral activity and multilateral resistance variables by equating fixed effects with structural gravity counterparts. Our findings also provide important validation of a host of general equilibrium comparative static exercises based on the structural gravity model.

Arming in the global economy: The importance of trade with enemies and friends

We analyze how trade openness matters for interstate conflict over productive resources. Our analysis features a terms-of-trade channel that makes security policies trade-regime dependent. Specifically, trade between two adversaries reduces each one's incentive to arm given the opponent's arming. If these countries have a sufficiently similar mix of initial resource endowments, greater trade openness brings with it a reduction in resources diverted to conflict and thus wasted, as well as the familiar gains from trade. Although a move to trade can otherwise induce greater arming by one country and thus need not be welfare improving for both, aggregate arming falls. By contrast, when the two adversaries do not trade with each other but instead trade with a third (friendly) country, a move from autarky to trade intensifies conflict between the two adversaries, inducing greater arming. With data from the years surrounding the end of the Cold War, we exploit the contrasting implications of trade costs between enemies versus trade costs between friends to provide some suggestive evidence in support of the theory

Estimating the effects of non-discriminatory trade policies within structural gravity models

Abstract only in English and FrenchWe 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. = Évaluation de l’incidence des politiques commerciales non discriminatoires au sein de modèles de gravité structurels. Dans un modèle de gravité empirique théoriquement cohérent, nous proposons une méthode simple pour identifier les effets des politiques commerciales unilatérales et non discriminatoires sur le commerce bilatéral. Plus précisément, nous affirmons que les estimations basées sur des modèles de gravité structurels doivent être réalisées en tenant compte non seulement des données relatives aux flux commerciaux internationaux, mais aussi nationaux. L’utilisation de données relatives aux ventes domestiques permet d’identifier les effets des politiques commerciales non discriminatoires, par exemple les tarifs douaniers de la nation la plus favorisée (NPF), même en présence d’effets fixes importateur et exportateur. Notre approche peut être utilisée pour redresser les estimations relatives à l’élasticité des échanges, un paramètre clé des modèles commerciaux quantitatifs. Nous démontrons l’efficacité de nos techniques dans le cadre des tarifs douaniers NPF et des délais d’exportation, facteurs déterminants, représentatifs et non discriminatoires sur le commerce, à la fois pour l’importateur et l’exportateur. Il possible d’étendre nos méthodes pour quantifier les effets de n’importe quelle caractéristique spécifique à un pays sur le commerce, ainsi que de n’importe quelle politique non commerciale.Benedikt Heid, Mario Larch, Yoto V. Yoto

The Changing Incidence of Geography

The incidence of bilateral trade costs is calculated here using neglected properties of the structural gravity model, disaggregated by commodity and region, and re-aggregated into forms useful for economic geography. For Canada's provinces, 1992- 2003, incidence is on average some five times higher for sellers than for buyers. Sellers' incidence falls over time due to specialization, despite constant gravity coefficients. This previously unrecognized globalizing force drives big reductions in 'constructed home bias', the disproportionate predicted share of local trade; and large but varying gains in real GDP.

Terms of Trade and Global Efficiency Effects of Free Trade Agreements, 1990-2002

This paper infers the terms of trade effects of Free Trade Agreements (FTA's) with the structural gravity model. Using panel data methods to resolve two way causality between trade and FTA's, we estimate direct FTA effects on bilateral trade volume in 2 digit manufacturing goods from 1990-2002. We deduce the terms of trade changes implied by these volume effects for 40 countries plus a rest-of-the-world aggregate. Some gain over 10%, some lose less than 0.2%. Overall, using a novel measure of the change in iceberg melting, global efficiency rises 0.62%.

The Incidence of Geography on Canada's Services Trade

We estimate geographic barriers to export trade in nine service categories for Canada's provinces from 1997 to 2007 using the structural gravity model. Constructed Home, Domestic and Foreign Bias indexes (the last two new) capture the direct plus indirect effect of services trade costs on intra-provincial, inter-provincial and international trade relative to their frictionless benchmarks. Barriers to services international trade are huge relative to inter-provincial trade and large relative to goods international trade. A novel test confirms the fit of structural gravity with services trade data.

Gravity Estimations with Interval Data : Revisiting the Impact of Free Trade Agreements

We challenge the common practice of estimating gravity equations with interval or averaged data in order to capture dynamic-adjustment effects to trade-policy changes. Instead, we point to a series of advantages of using consecutive-year data recognizing dynamic-adjustment effects. Our analysis reveals that, relative to interval or averaged data, the use of consecutive-year data avoids downward-biased effect estimates due to the distribution of trade-policy events during an event window as well as due to anticipation (pre-interval) and delayed (post-interval) effects, and it improves the efficiency of effect estimates due to the use of more data

On the Widely Differing Effects of Free Trade Agreements: Lessons from Twenty Years of Trade Integration

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

Distance, globalization, and international trade

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 coeffcients. 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