Abstract
For PPML estimation of high-dimensional structural gravity panel models it proves useful to exploit the equilibrium restrictions imposed by the system of multilateral resistances. The main advantage of this approach lies in the functional dependence of the parameters of all dummy variables on the structural trade cost parameters. Moreover, the delta method is used to establish confidence intervals of counterfactual changes. Using the constrained panel PPML estimator for a panel of 65 countries in the period 1994–2012 indicates significant trade creation of economic integration agreements with average ranging in between 12.2 and 30.3% in 2012. Results also point to substantial domestic and international trade diversion, where the former dominates the latter.
Highlights
The large number of existing economic integration agreements (EIAs) has induced what is called a spaghetti bowl of preferential trade relationships
Bootstrapped standard errors refer to the parametric bootstrap with 2000 replications and are bias corrected and calculated as 2̂z − ̂zB ∓ 1.96̂z,B, wherez stands for figure to be estimated and index B refers to bootstrapped values of the mean and standard deviation of z induced by EIAs does not exhaust the possible welfare gains of a multilateral trade liberalization
Bootstrapped standard errors refer to the parametric bootstrap with 2000 replications and are bias corrected and calculated as 2̂z − ̂zB ∓ 1.96̂z,B, wherez stands for figure to be estimated and index B refers to bootstrapped values of the mean and standard deviation of z the 1994-benchmark the group of EIA- member countries enhanced bilateral trade by 93.6 [77.2, 110.1] percent between 1994 and 2012, i.e., by more than twice as new EIAs did
Summary
The large number of existing economic integration agreements (EIAs) has induced what is called a spaghetti bowl of preferential trade relationships. This paper reconsiders the trade creation and trade diversion effects of EIAs using constrained panel PPML estimation and the delta method for establishing reliable confidence intervals of general equilibrium EIA effects. Since concentrating out country-pair fixed effects is equivalent to imposing further restrictions on the cross-section based constrained PPML estimator, the available econometric results for this estimator are applicable to a panel setting as well While both the constrained and the unconstrained panel PPML estimators of the structural trade cost parameters are consistent if the imposed restrictions hold true, there are several important differences. The constrained PPML estimator is free of this asymptotic bias, since exporter-time and importer-time dummies are pinned done by the system of multilateral resistances and are functionally dependent on the structural trade cost parameters and the exogenously given gross-production and expenditures figures. The present paper contributes to the evolving literature proposing fast zig–zag algorithms for the estimation of high dimensional panel models based pseudo-demeaning or separate up-dating of fixed effects (see Correia et al 2020; Larch et al 2019; Stammann 2018)
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