We analysed the impacts of RTAs on trade flows, with a particular focus on their trade
creation and diversion effects, by estimating the gravity equation covering 67 countries/
regions for 27 years from 1980 to 2006 at a disaggregated level of 20 products. In our estimation,
we dealt with the problems of endogeneity bias and zero trade flows by applying the
fixed effects PPML estimator.
We found that the impacts of RTAs on trade flows differ by product and type of RTA.
Trade creation is found for many products in customs unions (CUs) compared with FTAs,
while the trade diversion effect is found for fewer products in CUs than in FTAs. We also
found that plurilateral RTAs give rise to trade creation for many more products compared
with bilateral RTAs. We observed that RTAs among developed countries generate the trade
creation effect for a half of all products while the trade diversion effect is not found for any
products except medical and pharmaceutical products. In contrast, RTAs among developing
countries give rise to trade diversion for many more products compared with the RTAs
among developed countries. These results suggest that high tariffs imposed on imports from