Terms of Trade and Global Efficiency Effects of Free Trade Agreements, 1990-2002

James E. Anderson, Yoto V. Yotov

NBER Working Paper No. 17003
Issued in April 2011
NBER Program(s):   ITI

This paper infers the terms of trade effects of Free Trade Agreements (FTA's) with the structural gravity model. Using panel data methods to resolve two way causality between trade and FTA's, we estimate direct FTA effects on bilateral trade volume in 2 digit manufacturing goods from 1990-2002. We deduce the terms of trade changes implied by these volume effects for 40 countries plus a rest-of-the-world aggregate. Some gain over 10%, some lose less than 0.2%. Overall, using a novel measure of the change in iceberg melting, global efficiency rises 0.62%.

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Acknowledgments

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