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Gravity, Bilateral Agreements, and Trade Diversion in the Americas
Raymond Robertson
Antoni Estevadeordal

Cuadernos de Economía, Vol. 46, No. 133, pp. 3-31, 2009.
ISSN: Print 0716-0046 Electronic 0717-6821

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Krishna (1998) shows that a bilateral agreement between two countries render a multilateral agreement less attractive if the bilateral agreement is trade diverting.

This paper combines Krishna’s model with the empirical approach of Anderson and van Wincoop (2003) to show that the estimated effect of tariffs in a multiple country (n>3) context over time measures trade diversion. We apply this measure to new asymmetric, time-varying Latin American trade and tariff data using Anderson and van Wincoop’s (2003) nonlinear estimation approach and OLS.

The results show an increase in trade diversion as sub-regional trade agreements proliferated and enthusiasm for the Free Trade Agreement of the Americas declined.

Clasification JEL: F02, F13, F15
Keyword: Gravity models, asymmetric tariffs, trade diversion
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