Do free trade agreements actually increase members' international trade?

【来源】:[Journal of International Economics, March 2007]【作者】:[Baier S.L., Bergstrand J.H]【更新时间】:[2007-07-20]【浏览量】:[530]

For over 40 years, the gravity equation has been a workhorse for cross-country empirical analyses of international trade flows and - in particular - the effects of free trade agreements (FTAs) on trade flows. However, the gravity equation is subject to the same econometric critique as earlier cross-industry studies of U.S. tariff and nontariff barriers and U.S. multilateral imports: trade policy is not an exogenous variable. We address econometrically the endogeneity of FTAs. Although instrumental-variable and control-function approaches do not adjust for endogeneity well, a panel approach does. Accounting econometrically for the FTA variable's endogeneity yields striking empirical results: the effect of FTAs on trade flows is quintupled. We find that, on average, an FTA approximately doubles two members' bilateral trade after 10 years.