The implications of re-exports for gravity equation estimation, NAFTA and Brexit

This paper illustrates the importance of taking into account re-exports. It shows that not taking into account re-exports causes estimates from the gravity model (the standard economic trade model) to be biased. It also considers the implications of re-exports for two current policy events. It is shown that the United States actually ran a net trade surplus in the North American Free Trade Agreement (NAFTA). Second, it is argued there may be additional costs for the UK economy from Brexit that are not addressed in earlier studies.

Bilateral trade flows

This paper derives bilateral trade flows corrected for re-exports for a large number of countries at a detailed product level, using the World Input–Output Database (WIOD). Through a constrained non-linear optimization procedure, complete origin–destination matrices of re-exports are determined. Trade is subsequently restored to its most likely origin and destination.

Authors

PBL Authors
Mark Thissen
Other authors
Maureen Lankhuizen (VU Amsterdam)

Specifications

Publication title
The implications of re-exports for gravity equation estimation, NAFTA and Brexit
Publication date
11 July 2019
Publication type
Article
Page count
21
Publication language
English
Magazine
Spatial Economic Analyses
Issue
Volume 14, 2019 - Issue 4
Product number
3673