Abstract
In 1997, fourteen Arab countries concluded an agreement, aimed at achieving the Greater Arab Free Trade Area (GAFTA) by 1.1.2007 at the latest. This paper provides a first ex-post appraisal of the GAFTA agreement's trade effects. Based on new theoretical developments of the gravity equation, we estimate a panel data model which covers trade within the GAFTA area as well as with 35 other reference countries, over the period 1988-2005. Several estimators are presented, especially transformed fixed-effects, Hausman and Taylor as well as a GMM dynamic estimator. As a main finding, the calculation of gross trade creation shows that regional trade has increased by 20% since GAFTA has been implemented.• JEL Classification: F 15
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