![]() These findings are especially relevant as countries both nearby and far away seek to enter into bilateral, regional, and mega-regional accords as a means to boost bilateral exports. While EIAs promote trade in all types of goods, there is an additional benefit to intermediates which diminishes faster with distance. Given that the bulk of non-intermediates are final goods, this result suggests that EIAs among distant countries boost trade in consumption goods where timeliness in delivery is less of an issue. Third, we find either a statistically smaller effect or no significant effect on the interaction between distance and economic integration agreements for non-intermediate goods. These results are strengthened when controlling for trade agreement depth, measured by the type of agreement and content of provisions, and economic proximity, measured by similarities in GDP per capita levels. ![]() In particular, intermediate goods are both more distance-sensitive and EIA-sensitive than other goods categories. Second, we show that this phenomenon is in large part explained by heterogeneous responses of different types of goods both to EIAs alone and the interaction between EIAs and distance. First, in line with recent gravity literature, we find reduced form evidence that the effectiveness of economic integration agreements (EIAs) decreases with distance. As such, our results go beyond mere reduced form relationships. The inclusion of this rich set of fixed effects allows us to control for equilibrium prices (the multilateral resistance term in Anderson and Van Wincoop 2003) and the potential endogeneity of trade agreements (Baier and Bergstrand 2007). How does geographic distance affect trade agreements’ impact on bilateral exports, and through what channels? We employ a gravity model strategy that controls for country-pair, exporter-time, and importer-time fixed effects to answer this question for bilateral exports of total, intermediate, and non-intermediate goods. This underscores that while economic integration agreements promote trade in all goods, there is an additional benefit to intermediates which diminishes faster with distance. ![]() Third, this paper finds either a smaller negative effect or no effect on the interaction between distance and economic integration agreements for non-intermediates. These results hold when controlling for trade agreement depth, measured by the type of agreement and content of provisions, and economic similarity among trading partners. Second, this phenomenon is in large part explained by the impact of economic integration agreements on intermediate goods. First, although economic integration agreements have a positive impact on trade flows, geographic distance significantly decreases their effect. How does geographic distance affect the impact of trade agreements on bilateral exports, and through what channels? This paper examines these questions in a gravity model context for different types of goods for 185 countries over the period 1965–2010. ![]()
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