Joint International Economics - UNU-CRIS Seminar by Stijn Salden on Identifying Trade Diversion Effects in Structural Gravity

While extensive research has established that preferential trade agreements (PTAs) increase trade flows among member countries, much less is known about their effect on trade between member and non-member countries. Correctly taking these ‘trade diversion’ effects into account is necessary to evaluate the full impact of a PTA, but the current literature reports significantly different conclusions on the size of trade diversion. One reason for these differences is that researchers employ different methods, that seem to be capturing different types of trade diversion. We provide a framework within the structural gravity model to define and estimate trade diversion effects. This framework allows us to categorize the existing literature into one of two methods and to interpret their different estimates. We argue that these two approaches each capture a unique type of trade diversion, and can therefore be combined, providing a consistent estimate of trade diversion effects. We validate this new method in a Monte Carlo exercise and apply it to the case of the 1995 Customs Union between the EU and Türkiye. 

This is a closed event. For further information, please contact Pascale Vantorre at pvantorre@cris.unu.edu