Terms of Trade and Global Efficiency Effects of Free Trade Agreements

of the 1990s on manufacturing real incomes through the improvement of the terms of trade (TOT) using the gravity model for international trade.
FTAs are trade agreements that aim to reduce or completely eliminate trade tariffs as well as other trade barriers such as quotas between agreement members.
The paper estimates the volume effects of FTAs on bilateral trade flows.
The main result is that, on average, FTAs improve the TOT by around 5% among partner nations. Losses were mostly confined to non-partner countries.

Short Description of the Agenda and Results

1990s and promoted free trade between partner countries. The paper examines the effects of the FTAs on 40 partner countries and the so-called the Rest of the World (ROW) which consists of 24 non-partner nations.
The effects were examined across different manufacturing sectors namely Food, Textile, Paper, Wood, Metals, Minerals, Chemicals, and Machinery.

Data Description

of the paper was to differentiate between the effects of the FTAs on the Most Favored Nations with high tariffs and on those with low tariffs. The estimation showed that FTA effects are much stronger for country pairs with high MFN tariffs.

in trade flows
Takes care of FTAs endogeneity issue
Accounts for unobservable multilateral resistances
Incidental Parameters problem does not apply

flows
Accounts for heterogeneity of in trade flows
Takes care of FTAs endogeneity issue
Accounts for unobservable multilateral resistances
Incidental Parameters problem does not apply