Gravity Estimations with Interval Data: Revisiting the Impact of Free Trade Agreements
Open accessAbstract
We challenge the common practice of estimating gravity equations with interval or averaged data in order to capture dynamic‐adjustment effects to trade‐policy changes. Instead, we point to a series of advantages of using consecutive‐year data recognizing dynamic‐adjustment effects. Our analysis reveals that, relative to interval or averaged data, the use of consecutive‐year data avoids downward‐biased effect estimates due to the distribution of trade‐policy events during an event window as well as due to anticipation (pre‐interval) and delayed (post‐interval) effects, and it improves the efficiency of effect estimates due to the use of more data.
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The RTA effects have fully materialised after around 10-15 years.
“This is consistent with findings in the literature that the RTA effects have fully materialised after around 10-15 years (see for example Baier & Bergstrand, 2007;Baier & Standaert, 2022;Egger et al., 2022).”
From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Egger et al., 2022
Egger et al. (2022) argue that gravity estimations with 3-way fixed effects should rely on data for consecutive years.
“Instead, Egger et al. (2022) argue that gravity estimations with 3-way fixed effects should rely on data for consecutive years.”
From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Egger et al. (2022)
RTA estimates obtained with different intervals and consecutive-year data are not very different from each other.
“Consistent with one of the main findings from Egger et al. (2022), we see that the RTA estimates that we obtain with different intervals and consecutive-year data are not very different from each other.”
From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Egger et al. (2022)
Egger et al. (2022) question the practice of using interval data because it requires dropping a lot of data and the selection of intervals is somewhat random.
“Recently, Egger et al. (2022) question this practice on the basis that its implementation requires dropping a lot of data (e.g., using 5-year intervals may lead to dropping up to 80% of the raw data) and that the selection of the intervals is somewhat random.”
From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Egger et al. (2022)
RTAs reduce tariffs and NTMs stepwise, and the effects of reduced tariffs and NTMs may take time to materialise.
“A possible motivation for the 'phasing-in' effects of RTAs is that RTAs reduce tariffs and NTMs stepwise, and the effects of reduced tariffs and NTMs may take time to materialise (see for example Baier & Bergstrand, 2007;Egger et al., 2022).”
From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Egger et al., 2022
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Cites
An Advanced Guide to Trade Policy Analysis: The Structural Gravity Model
Yotov, Y. V., Piermartini, R., Monteiro, J.-A., & Larch, M. (2016) · doi:10.30875/abc0167e-en · Cited by 959 · see citing works
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Cited by
Sorted by citations
Estimating the effects of trade agreements: Lessons from 60 years of methods and data
Larch, M., & Yotov, Y. V. (2024) · The World Economy · doi:10.1111/twec.13569 · Cited by 56 · see citing works
Self-citationQuantifying the partial and general equilibrium effects of sanctions on Russia
Flach, L., Heiland, I., Larch, M., Steininger, M., & Teti, F. A. (2024) · Review of International Economics · doi:10.1111/roie.12707 · Cited by 20 · see citing works
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- Authors
- Egger, P. H., Larch, M., & Yotov, Y. V.
- Affiliations
- Center for Economic and Policy Research (US)
- Centre d'Etudes Prospectives et d'Informations Internationales (FR)
- Drexel University (US)
- Venue
- Economica
- Publisher
- Wiley
- Published
- 2021-10-13
- Volume
- 89
- Issue
- 353
- Pages
- 44-61
- ISSN
- 0013-0427 (ISSN-L)
- 1468-0335
- OpenAlex
- W3207071809
- Cited by
- 144
- References
- 1
- Citations by year
- 2026: 23 · 2025: 41 · 2024: 34 · 2023: 33 · 2022: 10 · 2021: 2 · 2020: 1
- FWCI
- 29.87
- Type
- journal article
- Language
- en
- Open access
- hybrid
- doi.org
- Licence
- Locations
- Economica (publishedVersion, cc-by)
- EPub Bayreuth (University of Bayreuth) (acceptedVersion, cc-by)
- ERef Bayreuth (University of Bayreuth) (submittedVersion, cc-by)
- Repository for Publications and Research Data (ETH Zurich) (submittedVersion, cc-by)
- ETH Zürich Research Collection (cc-by)
- Topics
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Global trade and economics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Growth and Productivity
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Keywords
- gravity model, free trade agreements, trade policy effects, dynamic adjustment, interval data
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