Performance of Western Hemisphere Trading Blocs: A Cost-Corrected Gravity Approach
IMF Working Papers, June 1, 2004
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- Performance of Western Hemisphere Trading Blocs: A Cost-Corrected Gravity Approach
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Bibliographic details
- Authors: Enzo Croce, V. Hugo Juan-Ramon, Feng Zhu
- Published: June 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451853247.001
Key findings
- Study period: 1978-2001.
- For the North American Free Trade Agreement (NAFTA), "trade integration outweighed trade diversion."
- For MERCOSUR, "increased integration and trade diversion went hand in hand."
- For the Central American Common Market (CACM) and the Andean Community, the evidence points to "trade diversion only."
- Trade among neighboring countries has increased since the early 1990s.
- The estimations are based on a nonlinear gravity equation that incorporates the hypothesis that "exports create externalities that affect trade costs."
- The exports-externalities hypothesis "might help reconcile the theoretical unitary income elasticity with most empirical findings of a non-unitary income elasticity in studies using the gravity equation."
Methodology and analytical approach
- Empirical framework: nonlinear gravity equation.
- Novel hypothesis incorporated: exports create externalities that affect trade costs.
- The approach is designed to address the discrepancy between theoretical unitary income elasticity and empirical non-unitary income elasticity findings in gravity-equation studies.
Subject areas and keywords
- Subject: Econometric analysis, Economic integration, Exports, Gravity models, Imports, International trade, Trade agreements, Trade integration.
- Keywords: bloc's propensity, Exports, externalities, Global, Gravity models, Imports, Mercosur country, trade, Trade agreements, trade cost factor, trade diversion, trade financing constraint, Trade integration, trade integration and trade diversion, trade resistance, Trading blocs, Western Hemisphere, WP.