**Table 1. EIAs & bilateral distance: Baseline**

_5-year data, 1965-2010_

|**Variables**|(1a)|(1b)|(1c)|(2a)|(2b)|(2c)|(3a)|(3b)|(3c)|
|---|---|---|---|---|---|---|---|---|---|
||**ln_Xijt**|**ln_Intijt**|**ln_Othijt**|**ln_Xijt**|**ln_Intijt**|**ln_Othijt**|**ln_Xijt**|**ln_Intijt**|**ln_Othijt**|
|**lndistij**|-1.279***|-1.310***|-1.250***|||||||
||(0.009)|(0.010)|(0.009)|||||||
|**EIAijt**||||0.223***|0.243***|0.194***|1.106***|1.563***|0.028|
|||||(0.020)|(0.022)|(0.022)|(0.158)|(0.170)|(0.166)|
|**EIAijt*lndistij**|||||||-0.106***|-0.159***|0.020|
||||||||(0.019)|(0.021)|(0.020)|
|Fixed Effects||||||||||
|_(i, t-(t-5)); (j, t-(t-5))_|Yes|Yes|Yes|Yes|Yes|Yes|Yes|Yes|Yes|
|_(ij)_|No|No|No|Yes|Yes|Yes|Yes|Yes|Yes|
|**No. obs.**|103,963|93,997|90,595|99,861|90,174|86,513|99,861|90,174|86,513|
|**R**<sup>**2**</sup>|0.752|0.734|0.759|0.887|0.877|0.892|0.887|0.877|0.892|

Notes: Columns (1a) – (1c) refer to the regression specification: ln_ **Xijt** = β0 + β1lndistij + δit + φjt + εijt. Columns (2a) – (2c) and (3a) – (3c) show the estimation results for equations (6) and (7), respectively. Robust standard errors are in parentheses. *, **, and *** denote statistical significance at the 10, 5, and 1% levels, respectively, in two-tailed t-tests.

# _<u>3.2 Robustness checks and extensions</u>_

The above results help shape the policy debate regarding the characteristics of country pairs that benefit most from trade agreements: they show that the benefits of extra-regional EIAs are likely smaller than for intra-regional EIAs in terms of spurring trade flows of intermediate goods. Yet, we also acknowledge that this effect may not be driven by distance alone. Our results might be biased by the omission of other factors which have been shown to influence trade agreements’ impact and are correlated with distance. Two such factors are the depth of trade agreements<sup>15</sup> and how similar countries are in terms of their income levels.

To make this point more explicit, Figures 1 and 2 below show the relationship between geographic proximity and trade agreement depth and “economic proximity”<sup>16</sup> and trade agreement depth. Here, trade agreement depth is measured in two separate ways (per Baier and Bergstrand and DESTA). In Figure 1 (which relies upon the Baier and Bergstrand dataset), we observe that the log of bilateral geographic and economic distance decreases as trade agreements become deeper. Otherwise stated, closer and more similar countries have the deepest agreements. In this figure one-way preferential agreements are the shallowest agreement and economic unions the deepest.

Figure 2 (which relies upon the DESTA dataset) shows that the log of bilateral distance decreases until four levels of provisions are included, after which it increases to roughly the same level as agreements with no provisions at all. Economic distance follows a similar trend, decreasing until five provisions are included and then increasing. Although the DESTA depth index rates a 7 as the deepest form of agreement, one possible explanation for the U shape observed in Figure 2 is that certain categories of provisions may divert rather than encourage trade. Two examples are provisions relating to intellectual property rights or competition policy.

> 15 In their 2014 paper, BBF convincingly argue that the marginal impact of EIAs on bilateral gross exports is the highest for deepest agreements, both at intensive and extensive trade margins.

> 16 Economic proximity is defined as the absolute value of the difference in log GDP per capita between bilateral trading partners.

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