Jump to ContentJump to Main Navigation
Show Summary Details
More options …

The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

4 Issues per year

IMPACT FACTOR 2016: 0.252
5-year IMPACT FACTOR: 0.755

CiteScore 2016: 0.48

SCImago Journal Rank (SJR) 2016: 0.330
Source Normalized Impact per Paper (SNIP) 2016: 0.526

See all formats and pricing
More options …
Volume 13, Issue 2


Volume 18 (2018)

Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

Effects of the Endogenous Scope of Preferentialism on International Goods Trade

Peter Egger / Georg Wamser
Published Online: 2013-07-06 | DOI: https://doi.org/10.1515/bejeap-2012-0067


Previous empirical research has assumed that goods trade responds to goods trade preferentialism only, while other forms of preferentialism — such as services trade or investment preferentialism — are irrelevant for goods trade. This article provides novel evidence for the gains from a broader scope of preferentialism (in terms of the number of dimensions covered: goods, services, and investment) at the intensive and extensive country margins of bilateral goods trade.

Keywords: preferentialism; international trade; multiple treatments; endogenous treatments; ordered probit

JEL Codes: F14; F15; C21; C22


  • Arcand, Jean-Louis, Marcelo Olarreaga, and Laura Zoratto. 2010. “Weak Governments and Trade Agreements,” unpublished manuscript, University of Geneva.Google Scholar

  • Baier, Scott L., and Jeffrey H. Bergstrand. 2004. “Economic Determinants of Free Trade Agreements.” Journal of International Economics 64(1):29–63.CrossrefWeb of ScienceGoogle Scholar

  • Baier, Scott L., and Jeffrey H. Bergstrand. 2007. “Do Free Trade Agreements Actually Increase Members’ International Trade?” Journal of International Economics 71(1):72–95.CrossrefGoogle Scholar

  • Baier, Scott L., and Jeffrey H. Bergstrand. 2009. “Estimating the Effects of Free Trade Agreements on International Trade Flows using Matching Econometrics.” Journal of International Economics 77(1):63–76.Web of ScienceCrossrefGoogle Scholar

  • Baldwin, Richard E. 1995. “A Domino Theory of Regionalism.” In Expanding Membership in the European Union, edited by R. E. Baldwin, P. Haaparanta, and L. Kiander, 25–53. Cambridge: Cambridge University Press.Google Scholar

  • Baldwin, Richard E. 1997. “The Causes of Regionalism.” The World Economy 20(7):865–88.CrossrefGoogle Scholar

  • Baldwin, Richard E. 2011. 21st Century Regionalism: Filling the Gap Between 21st Century Trade and 20th Century Trade Rules, CEPR Policy Insight No. 56, Centre for Economic Policy Research, London.Google Scholar

  • Bergstrand, Jeffrey H., and Peter H. Egger. 2011. “The Determinants of BITs,” unpublished manuscript.Google Scholar

  • Bergstrand, Jeffrey H., Peter H. Egger, and Mario Larch. 2010. “The Timing of Preferential Trade Agreement Membership,” unpublished manuscript.Google Scholar

  • Blonigen, Bruce, and Ronald B. Davies. 2004. “The Effects of Bilateral Tax Treaties on U.S. FDI Activity.” International Tax and Public Finance 11(5):601–22.CrossrefGoogle Scholar

  • Bond, Eric W., and Constantinos Syropoulos. 1996. “The Size of Trading Blocs. Market Power and World Welfare Effects.” Journal of International Economics 40(3–4):411–37.CrossrefGoogle Scholar

  • Chamberlain, Gary. 1982. “Multivariate Regression Models for Panel Data.” Journal of Econometrics 18(1):5–46.CrossrefGoogle Scholar

  • Davies, Ronald B. 2003. “The OECD Model Tax Treaty: Tax Competition and Two-Way Capital Flows.” International Economic Review 44(2):725–53.CrossrefGoogle Scholar

  • Davies, Ronald B. 2004. “Tax Treaties and Foreign Direct Investment: Potential versus Performance.” International Tax and Public Finance 11(6):775–802.CrossrefGoogle Scholar

  • Davies, Ronald B., Hartmut Egger, and Peter H. Egger. 2010. “Profit Taxation and the Mode of Foreign Market Entry.” Canadian Journal of Economics 43(2):704–27.Google Scholar

  • Davies, Ronald B., Pehr-Johan Norback, and Ayca Tekin-Koru. 2009. “The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata.” The World Economy 32(1):77–110.CrossrefWeb of ScienceGoogle Scholar

  • Dorn, Sabrina, and Peter H. Egger. 2011. “On the Distribution of Exchange Rate Regime Treatment Effects on International Trade,” CEPR Discussion Paper no. 8654.Google Scholar

  • Egger, Peter H., and Mario Larch. 2008. “Interdependent Preferential Trade Agreement Memberships: An Empirical Analysis.” Journal of International Economics 76(2):384–99.Web of ScienceCrossrefGoogle Scholar

  • Egger, Peter H., Mario Larch, and Michael Pfaffermayr. 2004. “Multilateral Trade and Investment Liberalization: Effects on Welfare and GDP Per Capita Convergence.” Economics Letters84(1):133–40.CrossrefGoogle Scholar

  • Egger, Peter H., Mario Larch, and Michael Pfaffermayr. 2007a. On the Welfare Effects of Trade and Investment Liberalization.” European Economic Review 51(3):669–94.CrossrefGoogle Scholar

  • Egger, Peter H., Mario Larch, and Michael Pfaffermayr. 2007b. Bilateral versus Multilateral Trade and Investment Liberalization.” The World Economy 30(4):567–96.CrossrefGoogle Scholar

  • Egger, Peter H., Mario Larch, Michael Pfaffermayr, and Hannes Winner. 2006. “The Impact of Endogenous Tax Treaties on Foreign Direct Investment: Theory and Empirical Evidence.” Canadian Journal of Economics 39(3):901–31.CrossrefGoogle Scholar

  • Egger, Peter H., Mario Larch, and Kevin Staub. 2012. “Trade Preferences and Bilateral Trade in Goods and Services: A Structural Approach,” CEPR Discussion Paper no. 9051.Google Scholar

  • Egger, Peter H., Mario Larch, Kevin Staub, and Rainer Winkelmann. 2011. “The Trade Effects of Endogenous Preferential Trade Agreements.” American Economic Journal: Economic Policy 3(3):113–43.Web of ScienceCrossrefGoogle Scholar

  • Egger, Peter H., and Rainer Lanz. 2008. “The Determinants of GATS Commitment Coverage.” The World Economy 31(12):1666–94.CrossrefWeb of ScienceGoogle Scholar

  • Egger, Peter H., and Valeria Merlo. 2012. “BITs Bite: An Anatomy of the Impact of Bilateral Investment Treaties on Multinational Firms.” Scandinavian Journal of Economics 114(4):1240–66.Web of ScienceGoogle Scholar

  • Egger, Peter H., and Douglas R. Nelson. 2010. “How Bad Is Antidumping? Evidence from Panel Data.” Review of Economics and Statistics 93(4):1374–90.Web of ScienceGoogle Scholar

  • Egger, Peter H., and Georg Wamser. 2013. “Multiple Faces of Preferential Market Access: Their Causes and Consequences.” Economic Policy 28(73):145–87.Web of ScienceGoogle Scholar

  • Ekholm, Karolina, Rikard Forslid, and James R. Markusen. 2007. “Export-Platform Foreign Direct Investment.” Journal of the European Economic Association 5(4):776–95.CrossrefGoogle Scholar

  • Francois, Joseph, and Bernard Hoekman. 2010. “Services Trade and Policy.” Journal of Economic Literature 48(3):642–92.Web of ScienceCrossrefGoogle Scholar

  • Frankel, Jeffrey A., Ernesto Stein, and Shang-JinWei. 1995. “Trading Blocs and the Americas: The Natural, the Unnatural, and the Super-Natural.” Journal of Development Economics 47(1):61–95.CrossrefGoogle Scholar

  • Freund, Caroline. 2000. “Different Paths to Free Trade: The Gains from Regionalism.” Quarterly Journal of Economics 115(4):1317–41.CrossrefGoogle Scholar

  • Helpman, Elhanan E., Marc J. Melitz, and Stephen R. Yeaple. 2004. “Export versus FDI with Heterogenous Firms.” American Economic Review 94(1):300–16.CrossrefGoogle Scholar

  • Horn, Henrik, Petros C. Mavroidis, and Andre Sapir. 2010. “Beyond the WTO? An Anatomy of EU and US Preferential Trade Agreements.” The World Economy 33(11):1565–88.Web of ScienceCrossrefGoogle Scholar

  • Huang, Hui, John Whalley, and Shunming Zhang. 2009. “Exploring Policy Options in Joint Intertemporalspatial Trade Models using an Incomplete Markets Approach.” Economic Theory 41(1):131–45.CrossrefWeb of ScienceGoogle Scholar

  • Karacaovali, Baybars, and Nuno Limao. 2008. “The Clash of Liberalizations: Preferential vs. Multilateral Trade Liberalization in the European Union.” Journal of International Economics 74(2):299–372.CrossrefWeb of ScienceGoogle Scholar

  • Limao, Nuno. 2007. “Are Preferential Trade Agreements with Non-Trade Objectives a Block for Multilateral Liberalization?” Review of Economic Studies 74(3):821–55.CrossrefGoogle Scholar

  • Limao, Nuno, and Patricia Tovar Rodriguez. 2011. “Policy Choice: Theory and Evidence from Commitment via International Trade Agreements.” Journal of International Economics 85(2):186–205.CrossrefGoogle Scholar

  • Magee, Christopher S. 2003. “Endogenous Preferential Trade Agreements: An Empirical Analysis.” Contributions to Economic Analysis & Policy 2:Article 15.Google Scholar

  • Mundlak, Yair. 1978. “On the Pooling of Time Series and Cross Section Data.” Econometrica 46(1):69–85.CrossrefGoogle Scholar

  • Ornelas, Emanuel. 2005a. Endogenous Free Trade Agreements and the Multilateral Trading System.” Journal of International Economics 67(2):471–97.CrossrefGoogle Scholar

  • Ornelas, Emanuel. 2005b. Trade Creating Free Trade Areas and the Undermining of Multilateralism.” European Economic Review 49(7):1717–35.CrossrefGoogle Scholar

  • Ornelas, Emanuel. 2005c. Rent Destruction and the Political Viability of Free Trade Agreements.” Quarterly Journal of Economics 120(4):1475–506.CrossrefGoogle Scholar

  • Rosenbaum, Paul R., and Donald B. Rubin, 1983. “The Central Role of the Propensity Score in Observational Studies for Causal Effects.” Biometrika 70(1):41–55.CrossrefGoogle Scholar

  • Sauvant, Karl P., and Lisa E. Sachs. 2009. The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties and Investment Flows. New York: Oxford University Press.Google Scholar

  • Wooldridge, Jeffrey M. 1995. “Selection Corrections for Panel Data Models Under Conditional Mean Independence Assumptions.” Journal of Econometrics 68(1):115–32.CrossrefGoogle Scholar

  • Wooldridge, Jeffrey M. 2002. Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.Google Scholar

  • Wooldridge, Jeffrey M. 2005. “Simple Solutions to the Initial Conditions Problem in Dynamic, Nonlinear Panel Data Models with Unobserved Heterogeneity.” Journal of Applied Econometrics 20(1):39–54.CrossrefGoogle Scholar

About the article

Published Online: 2013-07-06

In general, there is heterogeneity about any type of agreements regarding the extent of market access and the so-called preference margins granted across different activities (goods with goods trade, services with services trade, and investment-related activities with foreign direct investment). We account for such heterogeneity to the extent that we distinguish between agreements that contain goods trade provisions only, ones that capture goods and services trade provisions, ones that capture goods and investment provisions, and ones that capture goods, services, and investment provisions. However, even GTAs with goods provisions only differ with regard to the tariff lines (products) covered and the preference margins granted (i.e. the difference between the applied tariff outside the agreement and the one charged within the agreement). Accounting for the latter type of heterogeneity lies beyond the scope of this article (see Baier and Bergstrand, 2004, 2007, and 2009, for a similar approach in that regard).

Many GTAs include services trade and investment provisions. For instance, this is obvious from a new data-set compiled by the World Trade Organization. In accordance with that data-set, we classify country-pairs to have services trade provisions whenever they appear in a GTA or a separate STA. Similarly, we classify country-pairs to have investment provisions no matter whether they appear in a trade agreement or a bilateral investment agreement.

We follow the Mundlak-Chamberlain-Wooldridge device to parameterize fixed pair effects as an additive function of averaged time-variant covariates in (see Mundlak 1978; Chamberlain 1982; Wooldridge 2002).

In the following, we provide a highly selective list of examples of work in economics which focused on the determinants or consequences of just one dimension of preferential market access. Work on the causes of agreements. GTAs-theory: Baldwin (1995, 1997); Bond and Syropoulos (1996); Limao and Tovar Rodriguez (2011); Arcand, Olarreaga, and Zoratto (2010); GTAs-empirics: Magee (2003); Baier and Bergstrand (2004); Bergstrand, Egger, and Larch (2010); STAs-theory: Huang, Whalley, and Zhang (2009); STAs-empirics: Egger and Lanz (2008); Francois and Hoekman (2010); Egger and Wamser (2013); BITs-theory: Egger, Larch, and Pfaffermayr (2007a, b); BITs-empirics: Bergstrand and Egger (2011); DTTs-theory: Davies (2003, 2004); DTTs-empirics: Egger, Larch, Pfaffermayr, and Winner (2006). Work on the consequences of agreements. GTAs-theory: Frankel, Stein, and Wei (1995); Freund (2000); Ornelas (2005ac); Limao (2007); Karacaovali and Limao (2008); GTAs-empirics: Baier and Bergstrand (2007, 2009); Egger et al. (2011); STAs-theory: Huang, Whalley, and Zhang (2009); STAs-empirics: Egger, Larch, and Staub (2012); BITs-theory: Egger, Larch, and Pfaffermayr (2004, 2007a, b); BITs-empirics: Egger and Merlo (2012); Sauvant and Sachs (2009); DTTs-theory: Davies, Egger, and Egger (2010); DTTs-empirics: Blonigen and Davies (2004); Egger et al. (2006); Davies, Norbäck, and Tekin-Koru (2009).

In principal, all time-invariant variables and their parameters in Table 4 could be thought of as being part of the vector of country-pair fixed effects. However, we report the corresponding parameters for convenience. Moreover, one could allow for continent-specific or even country-specific year effects rather than pooled year effects. With the data at hand, this leads to an extremely flat likelihood function which is difficult to optimize for parameter values. Therefore, we resort to the more parsimonious specification.

The results in Egger, Larch, Staub, and Winkelmann (2011) suggest that these two margins can be analyzed as two separate parts of an integrated model.

In general, endogenous treatment effects’ problems are ones of missing data. In our context, say, a country-pair ij with a scope of preferentialism of unity in period t is only observed with that treatment level. Ideally, we would like to compare this country-pair to itself with another treatment level (say, one with a scope of preferentialism of four) in the same period. However, such a data point does not exist. We can only impute (or estimate) it by finding other country-pairs in the same year which are very similar (ideally, they are identical) to country-pair ij.

Similar to linear regression models, matching based on the propensity score requires that all relevant variables are included in the model (so that the estimates – with matching, including the propensity score – are consistent). Notice that Assumption Al is not testable.

For observations to be comparable, country-pairs with a specific treatment and control level of the scope of preferentialism in a given year t should have overlapping probabilities of having the same scope as the treated. Otherwise, the units would be too dissimilar to infer causal treatment effects from.

Suppose units of observation with specific treatment and control levels of the scope of preferentialism had similar, overlapping probabilities of exhibiting the level of treatment of the treated but the respective determinants of those treatment probabilities would be very dissimilar for units with treatment s versus . Then, similarity in propensity scores would be an artifact and not a compact measure of similarity in the underlying , which they are supposed to be.

In principal, one could allow even for country-specific rather than continent-specific year effects. However, with the data at hand, the model’s objective function is difficult to optimize for parameter values in that case. Therefore, we resort to the more parsimonious specification.

Suppose that the propensity of having any scope other than 0 is zero in some initial period. Then, the level of propensity of having a given scope greater than 0 in a later period does represent not only the propensity of having that state but also the change in propensity relative to the initial period.

Notice that, following Lechner (2001), one may compute average treatment effects — say, and – based on the results reported in Tables 7 and 8, which can be compared to the scope-specific average treatment effects in Tables 5 and 6. In Table 9, we do so for the intensive margin of trade . Besides these scope-dyad-specific ATEs, we report scope-specific average treatment effects in the same table. The latter can be compared with the results on the scope-specific average treatment effects on the intensive margin of exports in Tables 5 and 6. The findings suggest that the average treatment effect of broadening the scope depends on the initial state of liberalization, which is not accounted for in the estimates in Tables 5 and 6.

Citation Information: The B.E. Journal of Economic Analysis & Policy, Volume 13, Issue 2, Pages 709–731, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2012-0067.

Export Citation

©2013 by Walter de Gruyter Berlin / Boston. Copyright Clearance Center

Citing Articles

Here you can find all Crossref-listed publications in which this article is cited. If you would like to receive automatic email messages as soon as this article is cited in other publications, simply activate the “Citation Alert” on the top of this page.

Jay Dixon and Paul Alexander Haslam
The World Economy, 2016, Volume 39, Number 8, Page 1080

Comments (0)

Please log in or register to comment.
Log in