Non‐discriminatory Trade Policies in Panel Structural Gravity Models: Evidence from Monte Carlo Simulations

Abstract

This paper provides Monte Carlo (MC) simulation evidence on the performance of methods used for identifying the effects of nondiscriminatory trade policy (NDTP) variables in panel structural gravity models. The benchmarked methods include a fixed effect (FE) estimator that utilizes data on intra national trade flows, the bonus‐vetus (BV) and the two‐stage fixed effect (FE‐2S) estimator. The results indicate that only the FE estimates are unbiased and consistent under very general assumptions of the data generating process. The favourable asymptotic properties of the FE estimator unfold as the number of period T increases.

Revisiting time as a trade barrier: Evidence from a panel structural gravity model

“…Empirical studies on the intensive margin, so far relied mostly on cross-sectional data and only few of them included domestic trade flows, mainly due to the unavailability of such data. However, as Sellner (2017) showed in Monte Carlo simulations, identification of the effects of non-discriminatory (i.e. time-varying but bilaterally-invariant) trade policy variables without information on domestic trade flows leads to biased estimates.…”

Trade agreements and Latin American trade (creation and diversion) and welfare

“…Heid et al (2017) propose a straightforward solution, which is to include intra-national trade, i.e. domestic sales (for a brief discussion see Sellner, 2019). These three adjustments allow us to provide unbiased estimations.…”

“…A TA changes not only the relative costs of trading with a signatory partner versus a non‐signatory partner, but also those of trading with a signatory partner instead of selling the product in the home market. Heid et al (2021) propose a straightforward solution, which is to include intra‐national trade, that is domestic sales (for a brief discussion see Sellner, 2019). These three adjustments allow us to provide unbiased estimations.…”

Trade Barriers in Government Procurement

“…showing how to identify the effect of unilateral trade policy within a structural gravity model (Heid et al, 2021;Sellner, 2019;Beverelli et al, 2018). We isolate provisions, like the pubic sharing of information and statistics, whose application is non-excludable (i.e., conditional on compliance by the member countries, non-member countries benefit as well for construction, and 130 thousand euros for supplies and services).…”

“…These areas include requirements that information on the procurement laws and regulations is published and publicly available and the promotion of electronic auctions. The questions that form the DTA indicator variables on the content of TAs in government procurement cover eight areas: overview, non-discrimination, coverage, procedural disciplines, transparency, dispute settlement, and new issues.27Sellner (2019) finds that this approach to identify the effects of non-discriminatory trade policies outperforms other methods such as a two-step estimator where estimates of the importer-year fixed effects…”