Gravity Estimations with Interval Data: Revisiting the Impact of Free Trade Agreements. (13th October 2021)

• Record Type: Journal Article
• Authors: Egger, Peter H.; Larch, Mario; Yotov, Yoto V.
• Is Part Of: Economica. Volume 89:Number 353(2022)
• Page Start: 44
• Page End: 61
• Publication Date: 2021-10-13
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/ecca.12394
• Languages: English
• ISSNs: 0013-0427

Abstract

Abstract : 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.