Keywords: International Trade, Free Trade Agreement, Gravitational Equation For more than forty years, the gravitational equation has been a trotter for transnational empirical analysis of international trade flows and, in particular, the impact of free trade agreements (FTAs) on trade flows. However, the gravitational equation is subject to the same econometric criticisms as previous interprofessional studies on U.S. customs and non-tariff barriers and multilateral imports to the United States: trade policy is not an exogenous variable. The authors are economically interested in the endogenousness of free trade agreements with variable instrumental (IV) techniques, control techniques (CF) and panel data techniques; Approaches IV and CF do not adapt well to endogenicity, but a panel-based approach does. The economic record of the endogenous FTA variables yields striking empirical results: the effect of free trade agreements on trade flows has increased fivefold. Clemson University – John E. Walker Department of Economics . The authors thank Jonathan Eaton, Rob Feenstra, Scott Kastner, Mika Saito, Curtis Simon, Jeff Wooldridge, Eduardo Zambrano and two anonymous referees for their excellent comments on previous projects and Doru Cojuc, Katie Martin, Kushlani Rajapakse, Duncan Stewart and Li Zhang for their excellent research support. The authors are grateful to the National Science Foundation for its financial support.
The opinions expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. All remaining errors are the responsibility of the authors. . Please contact Scott L. Baier, the John E. Walker Department of Economics, Clemson University, Clemson, South Carolina 29634, or at the Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309, email@example.com, or Jeffrey H. Bergstrand, Department of Finance, Mendoza College of Business and Kellogg Institute for International Studies, University of Notre Dame, Dame De Indiana 46556, firstname.lastname@example.org. Scott L. Baier and Jeffrey H. Bergstrand Working Paper 2005-February 3, 2005.