The Impact of Trade Agreements: New Approach, New Insights

June 10, 2016

Preview Citation

Format: Chicago

Swarnali A Hannan. The Impact of Trade Agreements: New Approach, New Insights, (USA: International Monetary Fund, 2016) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The Trans-Pacific Partnership (TPP) has reinvigorated research on the ex-ante impact of trade agreements. The results from these ex-ante models are subject to considerable uncertainties, and needs to be complimented by ex-post studies. The paper fills this gap in recent literature by employing synthetic control methods (SCM) – currently extremely popular in micro and macro studies – to understand the impact of trade agreements in the period 1983–1995 for 104 country pairs. The key advantage of using SCM to address selection bias – one of the persisting issues in trade literature – is that it allows the effect of unobserved confounder to vary with time, as opposed to traditional econometric methods that can deal with time-invariant unobserved country characteristics. Using SCM approach, the paper finds that trade agreements can generate substantial gains, on average an increase of exports by 80 percentage points over ten years. The export gains are higher when emerging markets have trade agreements with advanced markets. The paper shows that all the countries in NAFTA have substantially gained due to NAFTA. Finally, there is some evidence that trade agreements can potentially lead to slight import diversion, but not export diversion.

Subject: Export performance, Exports, Imports, International trade, North American Free Trade Agreement, Trade agreements

Keywords: Country pair, Dummy coefficient, Export diversion, Export gain, Export growth, Export performance, Exporting country, Exports, Global, Imports, International trade flows, North American Free Trade Agreement, Pairs in NAFTA, Partner countries' share, Presence of trade agreements, Synthetic control method, Synthetic control methods, Trade agreements, Trade cost, Trade diversion effect, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/117
Stock No:

WPIEA2016117
ISBN:

9781484386521
ISSN:

1018-5941

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