different paths to free trade the gains from regionalism we compare free trade reached through expanding regional trading blocs to free trade accomplished by multilateral negotiation with sunk costs the outcomes are different trade in an imperfectly competitive good flows disproportionately more between the original members of a regional agreement even after free trade is reached they secure a higher welfare level from regionalism than from free trade achieved multilaterally nonmembers however reach a lower welfare level a surprising result is that world welfare during free trade is greater when it is achieved by the regional path we conclude with some empirical evidence from the european union that is consistent with the model

economic determinants of free trade agreements abstract the purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements ftas and of the likelihood of ftas between pairs of countries using a qualitative choice model we develop this econometric model based upon a general equilibrium model of world trade with two factors of production two monopolistically competitive product markets and explicit intercontinental and intracontinental transportation costs among multiple countries on multiple continents the empirical model correctly predicts based solely upon economic characteristics 85 of the 286 ftas existing in 1996 among 1431 pairs of countries and 97 of the remaining 1145 pairs with no ftas

clustering and competition in asset markets economists financial commentators regulatory agencies and the legal community have recently criticized the nasdaq stock market inc because there is greater clustering of stock quotations on even eighths on nasdaq than on the new york stock exchange or the american stock exchange a phenomenon which critics attribute to collusion or some other defect in nasdaq market structure however as this article demonstrates clustering occurs in varying degrees in many other incontestably competitive financial markets including the nyse the amex the london stock exchange the london gold market and the international foreign exchange market this article provides a competitive theory of clustering that emphasizes the effect of uncertainty the size of transactions volatility and the informational and transactional roles of quotations on the degree of clustering in addition the article examines how market structure can affect the degree of clustering and considers the relation between clustering spread

estimating the effects of free trade agreements on international trade flows using matching econometrics abstract this paper provides the first cross section estimates of long run treatment effects of free trade agreements on members bilateral international trade flows using nonparametric matching econometrics our nonparametric cross section estimates of ex post long run treatment effects are much more stable across years and have more economically plausible values than corresponding ols cross section estimates from typical gravity equations we provide plausible estimates of the long run effects of membership in the original european economic community eec and the central american common market cacm between 1960 and 2000 and the estimates confirm anecdotal reports of these agreements effectiveness

some welfare effects of sequential customs union formation this paper deals with the effects on world welfare of sequential customs union formation a computational model of customs union formation is developed and simulated under a variety of assumptions these assumptions concern various characteristics of the world the pattern of customs union formation and gatt restrictions on common external tariffs the results show that unrestricted customs union formation is likely to result in successive deterioration of world welfare despite gains for the member countries collectively an examination of the current gatt guidelines however suggests that if they were vigorously enforced world welfare would rise with customs union formation

the regionalism debate an overview the following sections are included introductiondefinitionswto provisions for ptashistorical evolutioneffects on union membersvinerian analysis welfare effects of a tariff preferencetransport costs and ptasrules of origin in ftasnon traditional gains guaranteed market access shelter from contingent protection locking in the reforms and dispute settlementimplications for the global trading systemcan pta expansion lead to global free trade do ptas make multilateral liberalization less likely do ptas lead to a rise in trade barriers against nonmembers the spaghetti bowl phenomenonwto illegal policies in ptasopen regionalism deep integrationconclusions minimizing the adverse effects of ptasreferences this abstract was borrowed from another version of this item

the eastern enlargement of the european union this paper examines the prospects and problems of eastern enlargement it argues that considerations of stability and long run prosperity are the primary reasons why the eu has promised to enlarge eastward and why the central and eastern european nations wish to join while high politics prompted this promise opposition from eu special interest groups is likely to delay fulfilment of the promise for many years if this is the case europe should create a series of intermediate steps that would permit the reintegration of europe to proceed apace if a quick enlargement does occur eu politics is likely to become much more complicated the ceecs would have many votes in the council of ministers yet they would be very different economically to the average eu incumbent

internalization and stock price clustering finnish evidence abstract internalization the practice of brokers executing trades in house is a significant phenomenon in the helsinki stock exchange during the continuous trading session 97 5 upstairs market trades are internalized the corresponding figure for after hours upstairs market trades is 73 1 the prices of internalized trades are somewhat more clustered than the prices of other trades during the continuous trading session but they are not more clustered than the prices of negotiated trades in the after hours upstairs market this suggests that finnish brokers do not use a more discrete set of prices for internalized trades than for other upstairs trades

stock price clustering and discreteness stock prices cluster on round fractions clustering increases with price level and volatility and decreases with capitalization and transaction frequency clustering is pervasive price clustering will occur if traders use discrete price sets to simplify their negotiations exchange regulations require that most stocks be traded on eighths clustering on larger fractions will occur if traders choose to use discrete price sets based on quarters halves or whole numbers an econometric model of clustering is derived and estimated projections from the results suggest that traders would frequently use odd sixteenths when trading low price stocks if exchange regulations permitted trading on sixteenths article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

collateral damage exchange controls and international trade abstract while new conventional wisdom warns that developing countries should be aware of the risks of premature capital account liberalization the costs of not removing exchange controls have received much less attention this paper investigates the negative effects of exchange controls on trade to minimize evasion of controls countries often intensify inspections at the border and increase documentation requirements thus the cost of conducting trade rises the paper finds that a one standard deviation increase in the controls on trade payment has the same negative effect on trade as an increase in tariff by about 14 percentage points a one standard deviation increase in the controls on fx transactions reduces trade by the same amount as a rise in tariff by 11 percentage points therefore the collateral damage in terms of foregone trade is sizable

regional trade agreements and the pattern of trade a networks approach this paper uses a complex network approach for the analysis trade effects from regional trade agreements on world trade flows we use bilateral trade data to compute the network community structure for every year between 1970 and 2000 we compare this to null community structures that emerge from various models based on regional and geographical classifications the implementation of rta s and gravity models of trade our results show that rta formation appears to have a cyclical pattern on the world trade network community structure we document periods where bilateral trade flows and the structure of the world trade network are consistent with those predicted by formation of rtas these cycles occur in 1980 86 and 1990 96 at the same time we document periods in which the pattern in the world trade network is not explained by rta formation two periods 1986 90 and 1997 2000 show a pattern of bilateral trade flows that moves away from the prediction that results from assuming rta formation as the driving force in the determination of the world trade network structure factors contributing to the latter parts of the cycle during our sample period include formation of regional trade networks in east asia that account for a significant portion of world trade but are not formalised by rtas in force

peeling away the layers impacts of durable tariff elimination abstract we demonstrate that durable mfn tariff elimination affects trade patterns through several layers and magnitudes of effects are sizable the wto information technology agreement s ita unique setting allows us to overcome the challenges associated with identifying effects of non discriminatory trade policies due to two reasons i ita constitutes a quasi natural experiment of several passive signatories joining the agreement as an unavoidable part of pursuing a larger policy objective and ii ita s partial coverage of the it sector provides a natural control group for identification based on cross product variation our analysis finds novel nonlinear impacts of tariff liberalization complete tariff elimination results in large additional trade gains over and above tariff reductions especially for intermediate goods the commitment to durable tariff elimination through wto bindings adds another two layers boosting both imports and exports more than equivalent unilateral reforms this commitment spurned development of a downstream it export sector in passive signatories

failure to launch the role of land inequality in transition delays recent work in the growth literature has provided various explanations for transition delays and the great divergence this paper provides empirical support for one theory of transition delays initial land inequality our analysis is designed to elucidate the channels via which land inequality can affect long run economic performance using a new historical data set for land inequality frankema 2009 we employ duration analysis to investigate whether higher levels of land inequality lead to longer delays in the extension of primary schooling we then investigate whether such delays affect long run economic performance via their effect on contemporaneous schooling our findings suggest that land inequality is a key determinant of delays in schooling and that such delays have a significant negative impact on long run output

assessing the impact of unilateral trade policies eba and agoa on african beneficiaries exports using matching econometrics the existing literature studying the impact of non reciprocal preferential trade agreements nrptas assumes implicitly nrptas are non randomly assigned without showing the evidence of that using a matching methodology this paper investigates whether the african growth and opportunity act agoa and the everything but arms eba unilateral trade concessions have had an impact and in what magnitude on the exports of african beneficiary countries in the light of the evidence of the non random nature endogeneity of nrptas methodologically previous studies using the matching procedure focused on bi or multilateral trade agreements our work focuses on nrptas that depend only on donors conditions accordingly we show that for nrptas gravity covariates cannot be used for the matching procedure we propose to use political variables as determinants for obtaining non reciprocal trade preferences in order to address the endogenous nature of nrpta assignment our main results confirm that a country becomes eligible for a nrpta only when it meets certain conditions defined by their donors such as political stability and economic regulation for agoa and freedom of expression and human development for eba results also show that both agoa and eba policies have had a positive impact on african beneficiary countries exports to nrpta s providers even if the magnitude impact of eba is significantly lower than that of agoa

are regional trading arrangements trade creating an application of extreme bounds analysis in this study we use extreme bounds analysis to test the robustness of the hypothesis that regional trading arrangements rtas are trade creating extreme bounds analysis provides a more rigorous test of specification uncertainty than traditional econometric theory by incorporating prior information and using a systematic approach to testing the fragility of coefficient estimates the results show that the trade creation effect of most rtas is fragile using a least squares estimator where all weight is attached to the sampling distribution eight or more of the twelve rtas considered are found to be trade creating when the relative weight in the estimation is shifted from the sampling to the prior distribution the number of rtas that are trade creating falls to six at the 95 percent likelihood ellipsoid moreover when we specify that not all rtas are trade creating four rtas increase trade at the 95 percent likelihood ellipsoid at the extreme bounds when all weight is attached to the prior distribution none of the rtas are found to be trade creating as a result we conclude that the pervasive trade creation effect found in the literature reflects not the information content of the data but rather the unacknowledged beliefs of the researchers

revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model this paper uses a gravity model to assess ex post regional trade agreements the model includes 130 countries and is estimated with panel data over the period 1962 1996 the introduction of the correct number of dummy variables allows for identification of vinerian trade creation and trade diversion effects while the estimation method takes into account the unobservable characteristics of each pairs of trade partner countries the endogeneity of some of the explanatory variables as well as a potential selection bias in contrast to previous estimates results show that regional agreements have generated a significant increase in trade between members often at the expense of the rest of the world

rough and lonely road to prosperity a reexamination of the sources of growth in africa using bayesian model averaging this paper takes a fresh look at africa s growth experience by using the bayesian model averaging bma methodology bma enables us to consider a large number of potential explanatory variables and sort out which of these variable can effectively explain africa s growth experience posterior coefficient estimates reveal that key engines of growth in africa are substantially different from those in the rest of the world more precisely it is shown that mining primary exports and initial primary education exerted differential effect on african growth these results are examined in relation to the existing literature copyright 2008 john wiley sons ltd

trade creation and diversion revisited accounting for model uncertainty and natural trading partner effects summary the effect of preferential trade agreements ptas on trade flows is subject to model uncertainty stemming from the diverse and even contradictory effects suggested by the theoretical pta literature the existing empirical literature has produced remarkably disparate results and the wide variety of empirical approaches reflects the uncertainty about the correct set of explanatory variables that ought to be included in the analysis to account for the model uncertainty that surrounds the validity of the competing pta theories we introduce bayesian model averaging bma to the pta literature statistical theory shows that bma successfully incorporates model uncertainty in linear regression analysis by minimizing the mean squared error and by generating predictive distributions with optimal predictive performance once model uncertainty is addressed as part of the empirical strategy we find strong evidence of trade creation trade diversion and open bloc effects our results are robust to a range of alternative empirical specifications proposed by the recent pta literature copyright 2010 john wiley sons ltd

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

want export diversification educate the kids first this paper uses bayesian model averaging to uncover the true determinants of export diversification among 36 potential factors and thus 236 potential models using data from 2001 to 2010 our results reveal two strong predictors primary school enrollment 99 7 posterior inclusion probability in the true model raises export diversification whereas the share of natural resources in gross domestic product 98 6 lowers diversification levels the importance of basic education coverage offers policymakers an opening toward diversifying exports at least in the long run this result is robust to accounting for the endogeneity of income levels by applying an instrumental variable bma method jel c11 f1 f34 o1 o2 o11

robust monetary policy with competing reference models abstract the existing literature on robust monetary policy rules has largely focused on the case in which the policymaker has a single reference model while the true economy lies within a specified neighborhood of the reference model in this paper we show that such rules may perform very poorly in the more general case in which non nested models represent competing perspectives about controversial issues such as expectations formation and inflation persistence using bayesian and minimax strategies we then consider whether any simple rule can provide robust performance across such divergent representations of the economy we find that a robust outcome is attainable only in cases where the objective function places substantial weight on stabilizing both output and inflation in contrast we are unable to find a robust policy rule when the sole policy objective is to stabilize inflation we analyze these results using a new diagnostic approach namely by quantifying the fault tolerance of each model economy with respect to deviations from optimal policy

robust determinants of intergenerational mobility in the land of opportunity abstract this paper revisits the influential work by chetty et al 2014 who attempt to explain the variation in intergenerational mobility across commuter zones in the us i e spatial mobility using nine classes of variables we employ bayesian model averaging methods that allow for model uncertainty to identify robust predictors of spatial mobility in doing so we pay special attention to the specification of model and parameter priors we also investigate the heterogeneous effects of these predictors on spatial mobility across commuter zones in different average income quintiles our findings suggest a more nuance and complex characterization of the spatial mobility process than that proposed by chetty hendren kline and saez

growth econometrics for agnostics and true believers abstract the issue of model uncertainty is central to the empirical study of economic growth many recent papers use bayesian model averaging to address model uncertainty but ciccone and jarocinski 2010 have questioned the approach on theoretical and empirical grounds they argue that a standard agnostic approach is too sensitive to small changes in the dependent variable such as those associated with different vintages of the penn world table pwt this paper revisits their theoretical arguments and empirical illustration drawing on more recent vintages of the pwt and introducing an approach that limits the degree of agnosticism

monopolistic competition and international trade reconsidering the evidence we test some propositions about international trade flows that are derived from models of monopolistic competition developed by elhanan helpman and paul krugman we investigate whether the volume of trade between oecd countries is consistent with the predictions of a model in which all trade is intraindustry trade in differentiated products we then repeat the test with non oecd countries we also investigate whether the share of intraindustry trade is consistent with a more general theoretical model in which some but not all trade is intraindustry trade our results lead us to question the apparent empirical success of these models

the size of trading blocs market power and world welfare effects abstract we construct an n country n commodity trade model to analyze the implications of bloc size for nash equilibrium tariffs and welfare the relationship between the absolute size of symmetric trading blocs and their market power is ambiguous and we illustrate how this relationship varies with model parameters in contrast sufficiently large increases in the relative size of a bloc enhance its relative market power and cause the welfare of its country members to rise above the free trade level we establish the existence of an optimal bloc size and study the dependence of optimal size on the parameters of the model

self commitment of combined cycle units under electricity price uncertainty day ahead energy market clearing relies on a deterministic equivalent model with a limited time horizon which may lead to inefficient scheduling of generating units from the point of view of generators for this reason generators may wish to assume the risk of self committing their units with the hope of securing greater profits this phenomenon may reduce the room for economic signals in the day ahead market in this paper we investigate the influence of risk aversion and price volatility on the decision of generators to self commit units we present a stochastic programming model for self committing combined cycle units under price uncertainty with a conditional value at risk criterion we use benders decomposition to solve the problem and present results on a case study to draw conclusions

economic effects of currency unions we develop a new instrumental variable iv approach to estimate the effects of different exchange rate regimes on bilateral outcomes the basic idea is that the characteristics of the exchange rate between two countries are partially related to the independent decisions of these countries to peg explicitly or de facto to a third currency notably that of a main anchor this component of the exchange rate regime can be used as an iv in regressions of bilateral outcomes we apply the methodology to study the economic effects of currency unions the likelihood that two countries independently adopt the currency of the same anchor country is used as an instrument for whether they share a common currency we find that sharing a common currency enhances trade increases price comovements and decreases the comovement of real gross domestic product shocks

bilateral trade flows the linder hypothesis and exchange risk bilateral trade flows are used to examine the linder hypothesis and the effect of exchange rate variability in a gra vity type trade model derived from an underlying demand and supply mo del a behavioral model is used to justify examining these issues joi ntly the model performs well empirically using a sample of seventeen countries for the period 1974 82 the authors find overwhelming supp ort for the linder hypothesis and this version of the gravity model moreover they find strong support for the hypothesis that increased exchange rate variability affects bilateral trade flows copyright 1987 by mit press

model averaging in economics an overview standard practice in empirical research is based on two steps first researchers select a model from the space of all possible models second they proceed as if the selected model had generated the data therefore uncertainty in the model selection step is typically ignored alternatively model averaging accounts for this model uncertainty in this paper i review the literature on model averaging with special emphasis on its applications to economics finally as an empirical illustration i consider model averaging to examine the deterrent effect of capital punishment across states in the usa

sorting through global corruption determinants institutions and education matter not culture abstract identifying the robust determinants of corruption among cultural economic institutional and geographical factors has proven difficult from a policy perspective it is important to know whether inherent largely unchangeable attributes are responsible or if institutional and economic attributes are at work accounting for model uncertainty we use bayesian model averaging bma to analyze a comprehensive list of 36 potential corruption determinants across 123 countries covering 87 percent of the world population the bma methodology sorts through all 68 719 476 736 possible model combinations 2 36 in order to carve out the robust correlates we then take a step toward alleviating endogeneity concerns in an instrumental variable bma framework our results indicate that cultural factors are largely irrelevant whereas particular economic and institutional characteristics matter the rule of law emerges as the most persistent predictor with a posterior inclusion probability pip in the true model of 1 00 whereas we find strong evidence for government effectiveness pip of 0 88 urbanization 0 85 and the share of women in parliament 0 80 as meaningful determinants of lower corruption levels in developing countries the extent of primary schooling enters as a powerful factor with a pip of 1 00

jointness of growth determinants this paper introduces a new measure of dependence or jointness among explanatory variables jointness is based on the joint posterior distribution of variables over the model space thereby taking model uncertainty into account by looking beyond marginal measures of variable importance jointness reveals generally unknown forms of dependence positive jointness implies that regressors are complements representing distinct but mutually reinforcing effects negative jointness implies that explanatory variables are substitutes and capture similar underlying effects in a cross country dataset we show that jointness among 67 determinants of growth is important affecting inference and informing economic policy copyright 2009 john wiley sons ltd

a long run structural macroeconometric model of the uk a new modelling strategy that provides a practical approach to incorporating long run structural relationships suggested by economic theory in an otherwise unrestricted var model is applied to construct a small quarterly macroeconometric model of the uk estimated over 1965q1 1999q4 in nine variables domestic and foreign outputs prices and interest rates oil prices the nominal effective exchange rate and real money balances the aim is to develop a model with a transparent and theoretically coherent foundation tests of restrictions on the long run relations of the model are presented the dynamic properties of the model are discussed and monetary policy shocks identified

has distance died evidence from a panel gravity model the estimated coefficient of distance on the volume of trade is generally found to increase rather than decrease through time using the traditional gravity model of trade this distance puzzle proved robust to several ad hoc versions of the model using data for 1962 96 for a large sample of 130 countries the introduction of an augmented barrier to trade function removes the paradox yielding a decline in the estimate of the elasticity of trade to distance of about 11 percent over the 35 year period for the whole sample however the death of distance is shown to be largely confined to bilateral trade between rich countries with poor countries becoming marginalized

international aspects of public infrastructure investment m odelling infrastructure as an international public good in a two country m odel of trade where each country s social planner behaves strategically we show that the equilibrium levels of infrastructure are sub optimal from a global perspective utilising an appropriate econom etric fram ework and data from 16 european countries over the period 1987 95 we find evidence that accords well with the m ain predictions of our theory thus we are able to offer a plausible theoretical explanation why public capital m ay be undersupplied as suggested by previous em pirical literature