Estimating the staged effects of regional economic integration on trade volumes

Abstract

This article compares various specifications of the gravity model of trade, which are commonly used in the literature. It shows that most of them can be regarded as nested versions of a general specification in which the heterogeneity of bilateral country-pair fixed effects is accounted for. This article constructs a modified gravity model in which both the conventional gravity variables and price-effect variable are included. It intends to discuss the trend of the effects of the enlargement and enhancement of regional blocs, particularly taking account of the staged effects to investigate the effects of regional economic agreements on trade volumes. The differences of the effects across regional blocs are investigated.