Are Regional Trading Agreements Beneficial? Static and Dynamic Panel Gravity Models

Inma Martinez-Zarzoso, Georg-August Universitaet Goettingen
Felicitas Nowak-Lehmann D., Georg-August Universitat Gottingen
Nicholas Horsewood, University of Birmingham

Abstract

This paper evaluates the effects of preferential agreements on trade between trade group members and nonmembers using a static model and a dynamic gravity model. The gravity model is estimated using recent panel data techniques which account for the endogeneity of the integration effects and the existence of dynamic effects. We incorporate into the static model the time-varying, multilateral resistance terms to obtain unbiased estimates. In addition, we estimate a dynamic version of the gravity model using a number of GMM estimators. The results show that dynamics are significant and robust and that the new wave of regionalism in the 1990s has had larger positive effects on intra and extra-bloc trade on developed countries (EU and NAFTA) than on developing countries.