elasticities. To determine the “consensus” effect of a particular PTA on trade, the authors add the number of positive and negative results. If the difference between the positive and negative findings is two or more studies, the “consensus” effect is signed accordingly, otherwise, the result is deemed inconclusive.<sup>10</sup> The authors show that, on average, the Andean Pact, the Australia-New Zealand Closer Economic Relations (CER) trade agreement, Association of Southeast Asian Nations FTA (AFTA), the EU, and European Free Trade Area (EFTA) have been found to be net trade-creating. The net outcome for North American Free Trade Agreement (NAFTA) is trade-diverting, while the results for Latin American Integration Association (LAIA) and the Southern Cone Common Market (MERCOSUR) have been inconclusive. Their own estimates, which rely on the fixed effects methodology,<sup>11</sup> are somewhat different from these conclusions: the Andean Pact, LAIA, US-Israel FTA, and South Pacific Regional Trade and Economic Co-operation Agreement (SPARTECA) are found net trade-creating, while AFTA, EFTA, the EU, MERCOSUR, NAFTA, CER, EUSwitzerland, Chile-Colombia, Australia-Papua New Guinea, Chile-MERCOSUR, EU-Egypt, and EU-Poland FTAs are net trade-diverting. Thus, contrary to much of the earlier findings, their analysis classifies virtually all of the large and well-known PTAs in their sample as trade-diverting.<sup>12</sup> A more sophisticated technique of combining results from different studies is meta-analysis, which takes parameter estimates from various papers and tests the hypothesis that the mean value is statistically different from zero.<sup>13</sup> This approach is employed in chapter 3 of World Bank (2004), which collects coefficient estimates of the trade impact of 19 PTAs from 17 research studies. Two types of impacts are considered: the overall effect, which is the PTA semi-elasticity of total imports, and the internal effect, which is the PTA semi-elasticity of intra-PTA imports. Among the 254 and

> 10Note that this methodology assigns equal weights to each result, irrespective of the strength of the findings. Thus, for example, a weak finding of trade creation and a highly significant estimate of trade diversion would exactly offset each other.

> 11Adams et al. (2003) do not refer to the theoretical gravity equation in their work, but their use of fixed effects is consistent with that methodology. Although, as discussed earlier, this addresses a possible omitted variable bias, there is another source of concern regarding the Adams et al. (2003) estimates. The authors make use of a Tobit estimation procedure owing to their assumption that trade flow data are censored at the lower bound (zero). However, it is not clear whether an observation of zero trade between two partners is a consequence of a combination of observables, or whether it represents a missing observation. If the latter is the case, as one would expect for trade flows between many small and/or developing countries, then assuming censoring will introduce bias into the estimates. 12Although the LAIA is undoubtedly large, it is a loosely-defined association of states without clear tariff reduction schedules, specific commitments, or timetables.

> 13See Stanley (2001) for a detailed discussion of the meta-analysis methodology, and Rose and Stanley (2005) for an application to gravity studies investigating the effects of currency unions on trade.

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