The Impact of Preferential Trade Agreements on the Margins of International Trade
Posted: 1 Aug 2011
Date Written: 2011
In this paper we consider the trade creating effects of Preferential Trade Agreements (PTAs) for a large sample of countries within the period 1962-2000. The paper builds upon existing literature by examining whether any significant effects of PTAs occur through a change in the variety of exports (the extensive margin) or through a change in the volume of existing products (the intensive margin). To address this issue we employ the commonly used gravity equation as well as a matching approach to deal with potential self-selection problems. Our results indicate that exports respond positively to the formation of a PTA between countries, and that much of this increase in exports occurs along the extensive margin. We also show that the extensive margin responds more strongly to the formation of a PTA in larger exporters and for larger country pairs.
Keywords: Preferential trade agreements, Intensive and extensive margin, Matching econometrics, Difference-in-difference
JEL Classification: F10, F15
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