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Do economic integration agreements affect trade predictability? A group effect analysis
Author(s) -
Figueiredo Erik,
Lima Luiz Renato
Publication year - 2020
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12439
Subject(s) - predictability , quantile regression , affect (linguistics) , economics , econometrics , economic integration , quantile , gravity equation , gravity model of trade , bilateral trade , international economics , psychology , statistics , mathematics , political science , law , china , communication
Recent theoretical findings in the trade literature suggest that economic integration agreements (EIAs) not only increase the level of trade but also make it more stable and predictable. This paper proposes a Hausman–Taylor quantile regression approach to identify the causal effect of EIA membership on trade predictability. The proposed methodology accounts for group effects in the gravity equation and is computationally efficient. Our results corroborate the theoretical findings that EIAs make trade more stable and predictable and this conclusion is even stronger for deeper EIAs.