Measuring intraregional trade

ABSTRACT

This article develops a novel measure of intraregional trade. The new measure is easy to implement and robust to different gravity models. I use the new measure to study the economic integration of the major trade blocs and discuss how the measure can be extended to analyse the roles of trade policies and institutions in regional integration.

KEYWORDS:

• Intraregional trade trade blocs gravity models of trade robust measure

JEL CLASSIFICATION:

• F10
• F14
• F15

Acknowledgments

The author would like to thank Marta Bengoa and Amr Rajab for reading earlier drafts and providing detailed comments. I’m also thankful to seminar participants at several conferences for the useful discussion and comments. Errors are mine.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ Throughout the article, I use regional economic integration and intraregional trade interchangeably. While economic integration is broadly defined as flows in goods, services, workers, and capital, it is common in the literature to approximate regional economic integration by intraregional trade.

² Specific region trend and aggregate shocks could lead to changes in integration measures over time, inhabiting year-to-year comparison of integration within trade blocs.

³ An exception here is Cheptea (2013).

⁴ A distinct but related literature focuses on the determinants of trade patterns and prices for a specific good, oil (Ji, Zhang, and Geng 2018; Zhang, Qiang, and Fan 2015). Generalizing the methods of these studies to evaluate intraregional trade might not be trivial, however.

⁵ The bilateral variables include: distance; dummies for common border, common language (official and used), colonial history, legal origin, common colonizer post-1945; time zone difference; and interaction terms between population and area for both countries with common border.

⁶ For instance, the nonnormalized measure ranges from .017 to 1616 for MENA and .12 to 14,980 for EU15.

⁷ Institutional quality data are taken from the World Bank Governance Indicator. The product of rule of law of country-pair creates a ‘constructed identified’ dyadic variable (Head and Mayer 2014). For trade policies, I include (1) both trade partners signed the GATT agreement, (2) both countries belong to a region (bloc) with effective regional trade agreement, and (3) both countries use a common currency.