Regionalism and Gravity
| Published date | 01 November 2002 |
| Author | Chris Milner,David Greenaway |
| Date | 01 November 2002 |
| DOI | http://doi.org/10.1111/1467-9485.00249 |
REGIONALISM AND GRAVITY
David Greenaway and Chris Milner *
ABSTRACT
Gravity models have been extensively used to evaluate the trade effects of regional
trading arrangements, (RTAs), especially over the last 10 years or so. Questions
addressed by researchers include, is there a regional bias to trade and are there
identifiable trade affects attributable to RTAs? This paper reviews the evidence
extant from this literature and evaluates the modelling and methodological issues
confronted when applying gravity modelling to the analysis of regionalism. The
paper argues that the approach has a distinctive role to play in evaluating trade
effects and its application has been enhanced by both the refinement of theoretical
underpinnings and development of econometric technique.
II
NTRODUCTION
The latter part of the twentieth century was characterised by a major wave of
regional trading agreements (RTAs) being concluded. Since the GATT’s
inception, well o ver 100 agreements hav e been notified under Ar ticle XXIV
arrangements, which waive the non-discrimination obligation enshrined in
Article I. This new regionalism has spawned an enormous literature on its
determinants and complementarity or otherwise with multilateralism. The
literature on both these issues has been surveyed elsewhere1and neither feature
prominently in this paper. Instead we focus on another dimension of the
literature, namely the trade effects of regional integration— the new
regionalism has given a renewed impetus to evaluating trade effects. Our
focus is on the use of gravity modelling in investigating such effects, though en
passant we do comment on its utility vis-a
`-vis alternative methodologies for
simulation=estimation.
As is well known, over a long period, the gravity model has performed
remarkably well as an empirical framework for explaining bilateral trade
flows. Its use has enjoyed something of a resurgence in recent years, partly
because of more systematic efforts to reinforce its theoretical underpinnings
Scottish Journal of Political Economy, Vol. 49, No. 5, November 2002
#Scottish Economic Society 2002, Published by Blackwell PublishersLtd, 108 Cowley Road, Oxford OX4 1JF, UK and
350 Main Street, Malden, MA 02148, USA
574
*Leverhulme Centre for Research on Globalisation and Economic Policy, University of
Nottingham
1See, for example Baldwin (1997) on the former and Bhagwati, Greenaway and Panagariya
(1998) on the latter.
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