clause still do not appear to matter in a statistically significant fashion. The estimated (absolute value of the) tariff elasticity is 1.08 and different from zero at the 10%-level of significance. To make the effect easier to understand, we translate it into the trade-creating effect of a tariff reduction of 3 percentage points, a very standard magnitude across sectors and trade agreements; a tariff reduction of 3 percentage points adds on average 3.24% to trade.<sup>10</sup> Model (2), therefore, seems to suggest that both the tariff reduction (across all types of agreements) and the non-tariff provisions in deep agreements create trade between countries, but the non-tariff provisions matter more. Note, also, that the point estimate of the tariff coefficient can be interpreted as the trade elasticity _σ_ . The value of 1.08 is implausibly low compared to the usual assumptions in the literature.

Specification (3) keeps the sample size constant but replaces the noisy tariff measure from WITS with the one obtained from the new GTD. The tariff elasticity is estimated much more precisely (the t-value doubles) and doubles in size to 2.99—more closely in line with parameter choices in the macroeconomic literature. This is as expected, as the use of the GTD lowers measurement error in the tariff variable, thereby lowering the attenuation bias that drives the tariff elasticity in Specification (2) towards zero. Now, a 3 percentage point reduction in tariffs boosts bilateral trade by 9%. The effects of the dummy variables, however, no longer differ from zero in terms of usual statistical significance.

This is an unexpected result. It suggests that the measurement bias present in (2) inflates the estimate of the deep trade agreement dummy as the trade-creating effect of the agreements is not appropriately accounted for by the mismeasured tariff variable. Taking Specification (3) at face value, non-tariff provisions in TAs do not _per se_ increase bilateral trade. In principle, this can be due to two reasons: either the non-tariff provisions in TAs do not lower trade costs at all, or they lower trade costs in a non-discriminatory (MFN) fashion so that trade costs fall with all trade partners (not just the ones in an FTA). Since we include domestic trade flows in our analysis, so that different treatment of domestic versus international trade flows is possible, the failure to find a significant TA effect would imply that TAs put foreign trade partners at par with domestic ones. In contrast, tariffs—by their very definition discriminatory—have a strong and precisely identifiable effect. One interpretation of this finding is that if policy makers want to use trade preferences for geostrategic purposes, they should focus on tariff reductions. Deep non-tariff provisions tend to diffuse and benefit all trade partners, potentially including those that the agreement does not directly address.

The larger sample used in Specification (4) resuscitates a marginally statistically significant effect of deep TAs, which now have an independent effect of increasing bilateral trade by 15%.

> 10 (1 + 3 _/_ 100)<sup>_−_</sup> (<sup>_−_</sup> 1 _._ 08) _−_ 1 = 0 _._ 0324

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