Jeffrey H. Bergstrand

• Ph.D. University of Wisconsin
• Professor (Full) at University of Notre Dame

Three years ago, very few economists would have imagined that one of the newest and fastest growing research areas in international trade is the use of quantitative trade models to estimate the economic welfare losses from dissolutions of major countries’ economic integration agreements (EIAs). In 2016, “Brexit” was passed in a United Kingdom refer...

It is now widely accepted that economic integration agreements (EIAs) and other trade-policy liberalizations contribute to nations’ economic growth and development and help alleviate poverty. However, the economic effects of such policies vary across countries’ economic structures; for instance, developing countries face higher fixed trade costs (p...

Using a novel common econometric specification, we examine the measurement of three important effects in international trade that historically have been addressed largely separately: the (partial) effects on trade of economic integration agreements, international borders, and bilateral distance. First, recent studies focusing on precise and unbiase...

Introduction One of the most dramatic changes to the international landscape since 1990 has been the growth in the number of economic integration agreements (EIAs) in the world. Article XXIV of the General Agreement on Tariffs and Trade (GATT) established a means for countries to negotiate bilateral and plurilateral trade agreements outside of the...

One of the main policy sources of trade-cost changes is the formation of an economic integration agreement (EIA), which potentially affects an importing country’s welfare. This paper: (i) provides the first evidence using gravity equations of both intensive and extensive (goods) margins being affected by EIAs employing a panel data set with a large...

One of the most notable international economic events since 1990 has been the enormous increase in the number of free trade agreements (FTAs). While Baier and Bergstrand were the first to show empirically the impact of a country-pair's economic characteristics on the likelihood of the pair having an FTA, the literature has been extended to demonstr...

Unlike the large literature on ‘democracy and trade’, there is a much smaller literature on the effect of the level of democracy in a nation on the level of its foreign direct investment (FDI) inflow. These few studies reveal mixed empirical results, and surprisingly only one study has examined bilateral FDI flows. Moreover, few of these studies us...

Despite widespread anecdotal evidence that lower trade barriers increase international trade, there is little firm quantitative evidence of the ‘trade-cost elasticity’ of trade flows, one of the two key aggregate statistics that have recently been identified as sufficient to quantify the economic welfare effects of trade-policy liberalizations and/...

The foreign direct investment (FDI) literature has generally failed to find strong systematic evidence of “vertical” motivations in bilateral aggregate FDI and foreign affiliate sales (FAS) data, despite recent evidence of vertical FDI in firm‐level data. Moreover, a Bayesian analysis of the empirical determinants of FDI (and FAS) flows reveals tha...

At the same time that the modern theory of international trade due to comparative advantage developed in the post-World War II era to explain the patterns of international trade using 2 × 2 × 2 general equilibrium models, a small and separate line of empirical research in international trade emerged to ‘explain’ statistically actual aggregate bilat...

Although preferential trade agreements (PTAs) have proliferated over the past 60 years, the formation or enlargement of a PTA remains a rare event. Among 10,585 country-pairs for 57 years (463,289 observations), there have been only 1,560 such events. While a small number of recent studies have examined empirically the economic determi-nants of the...

The foreign direct investment (FDI) literature has generally failed to find strong systematic evidence of "vertical" motivations in bilateral aggregate FDI and foreign affiliate sales (FAS) data, despite recent evidence of vertical FDI in firm-level data. Moreover, a recent Bayesian analysis of the empirical determinants of FDI (and FAS) flows reve...

For 40 years, the gravity equation has been a workhorse for cross-country empirical analyses of international trade flows and - in particular - the effects of free trade agreements (FTAs) on trade flows. However, the gravity equation is subject to the same econometric critique as cross-industry studies of U.S. tariff and nontariff barriers and U.S....

Bilateral investment treaties (BITs) have proliferated over the past 50 years such that the number of pairs of countries with BITs is roughly as large as the number of country-pairs that belong to bilateral or regional preferential trade agreements (PTAs). The purpose of this study is to provide the first systematic empirical analysis of the econom...

The literature on foreign direct investment has generally failed to find strong systematic evidence of "vertical" motivations in aggregate data. First, we show that the goal of finding vertical motivations for foreign affiliate sales by estimating the standard 2x2x2 "Knowledge-Capital" model was considerably hampered due to the limitation of only 2...

I think that we have spent way too much time on differentiated final goods, and neglected trade in intermediates … intermediates-inputs approach seems empirically very relevant, and formal econometric work would be very welcome. (James Markusen, interview in Leamer 2001, p. 382). Introduction Contrary to popular hype, the vast bulk of intermediates...

This paper provides the first cross-section estimates of long-run treatment effects of free trade agreements on members' bilateral international trade flows using (nonparametric) matching econometrics. Our nonparametric cross-section estimates of ex post long-run treatment effects are much more stable across years and have more economically plausib...

Using a Taylor-series expansion, we solve for a simple reduced-form gravity equation revealing a transparent theoretical relationship among bilateral trade flows, incomes, and trade costs, based upon the model in Anderson and van Wincoop [Anderson, James E., and van Wincoop, Eric. "Gravity with Gravitas: A Solution to the Border Puzzle." American E...

One of the most notable events of the world economy over the past twenty years has been the phenomenal growth in the number of international economic integration agreements, such as free trade agreements. This paper discusses the roles of “competitive liberalization” by nations’ governments and possible “domino effects” in the process of regionalis...

One of the most notable economic policy accomplishments since World War II has been the large reduction in tariff rates worldwide under several rounds of the GATT. However, ex ante estimates of the economic welfare gain to the world have always seemed small – often one-half of one percent of GDP – relative to the political costs of liberalizations,...

Globalization has led to dramatic growth in two-way flows of highly skilled pro-fessionals – what TIME magazine recently termed the "New Expatriates." However, no study has attempted to explain empirically these migrations of highly skilled ex-pats motivated by profit-maximizing multinational enterprises (MNEs), much less one based upon a formal th...

This paper provides an integrated theoretical and empirical framework for an-alyzing the economic determinants of bilateral flows of international trade, foreign direct investment (FDI), and migration of highly skilled workers. First, in the spirit of Markusen's "Knowledge-Capital" model, we establish the first numerical general equilibrium model o...

This paper argues that the 'competitive liberalisation' of national governments of the past several decades has created a 'market' for regional economic integration agreements (EIAs). Evidence shows that countries that have selected into EIAs - such as free trade agreements - have 'chosen well' in the sense that the same economic characteristics th...

Theoretical foundations for estimating gravity equations were enhanced recently in Anderson and van Wincoop (2003). Though elegant, the model assumes sym-metric bilateral trade costs to generate an estimable set of structural equations. In reality, however, trade costs (and trade flows) are not bilaterally symmetric. To al-low for asymmetric bilate...

Trade costs refer to the additional costs paid potentially by the final consumer of a good or service beyond the price at which a producer sells a good. In international trade, such costs may include the transport cost from origin to destination, taxes (or tariffs) imposed by importing nations’ governments, the costs of infrastructure to facilitate...

This paper addresses two important issues at the nexus of the literatures on international trade, foreign direct investment (FDI), foreign affiliate sales (FAS), and multinational enterprises (MNEs). First, the introduction of a third internationally-mobile factor (physical capital) to the standard 2 × 2 × 2 “knowledge-capital” model of MNEs with s...

This paper argues that the 'competitive liberalisation' of national governments of the past several decades reflects national governments' expectations of larger trade impacts from regional economic integration agreements (EIAs) than typical ex ante economic models have suggested. Moreover, we show that previous (typically cross-section) ex post em...

We address three themes on the New Regionalism. First, the prominent analogy to a “spaghetti bowl” of economic integration agreements (EIAs) should be replaced by reference to a « market » for EIAs. We suggest a systematic economic framework for analyzing « competitive liberalization » of governments in a static, long-run context. Second, we addres...

As Robert E. Lipsey (2002) has noted, two theories of foreign direct investment exist. The traditional approach is based upon a theory of international (physical) capital movements. The modern theory of multinational enterprises (MNEs) is based upon a theory of "proprietary assets," generated by immobile human capital, whose knowledge can be costle...

En este artículo abordamos tres temas en lo que respecta al "nuevo regionalismo': En primer lugar, la consabida analogía que hace referencia al "spaghetti bowl" de los acuerdos de integración económica (AJEs) quizás debería reemplazarse por otra analogía de un "mercado" para los AJEs. Analizamos la noción de "liberalización competitiva'; que acuñó...

Formal economic modeling of intra-industry trade ignores transportation or, more broadly, trade costs. Yet, as Anderson and van Wincoop (2004) suggest, trade costs are quite large. This paper extends work by Bergstrand (1990) that addressed intra-industry trade in the explicit presence of trade costs. In the context of a Helpman–Krugman-cum-trade-c...

For over 40 years, the gravity equation has been a workhorse for cross-country empirical analyses of international trade flows and — in particular — the effects of free trade agreements (FTAs) on trade flows. However, the gravity equation is subject to the same econometric critique as earlier cross-industry studies of U.S. tariff and nontariff barr...

The purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements (FTAs) and of the likelihood of FTAs between pairs of countries using a qualitative choice model. We develop this econometric model based upon a general equilibrium model of world trade with two fact...

This study analyzes the trade flows of the Gulf Cooperation Council (GCC) both among its member countries and with the rest of the world for the 1997-2002 and 2003-2007 periods. In this paper, the research question is whether the trade flows of the GCC countries with their partners have sustained and/or they have developed new relations over time,...

Government expenditures (financed by lump-sum taxes) influence real exchange rates potentially via a resource-withdrawal channel and a consumption-tilting channel. Recent theoretical and empirical studies have considered only the effects of government spending through the resource-withdrawal channel. We solve for the theoretical relationships among...

Economists have long investigated theoretically and empirically the relationship between government spending and equilibrium real exchange rates. As Frenkel and Razin (1996) summarize for a small open economy, government expenditures (financed by lump-sum taxes) influence real exchange rates via a resource-withdrawal channel and a consumption-tilti...

The purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements (FTAs) and of the likelihood of FTAs between pairs of countries. Moreover, we develop this econometric model based upon a general equilibrium theoretical model of world trade with two factors of prod...

In the 25th anniversary issue of the Brookings Papers on Economic Activity, Paul Krugman [Krugman, P., 1995. Growing world trade: Causes and consequences. Brookings Papers on Economic Activity (1), 327–377] stated that the answer to the fundamental question “Why has world trade grown?” remains surprisingly disputed. He noted that journalistic discu...

In 1991, Krugman illustrated that natural (regional) free trade agreements (FTAs) are likely to be welfare-enhancing if intercontinental transport costs are prohibitively high, but are likely to be welfare-reducing if such costs are zero. In 1995, Frankel, Stein and Wei extended the analysis to consider positive but nonprohibitive transport costs....

This paper generates closed-form theoretical solutions for the relationships among the real exchange rate, relative per capita consumption, and relative wealth in a stochastic dynamic general equilibrium model of two countries' representative consumers. The solutions offer insight into the robust cross-sectional relationship between relative per ca...

This chapter discusses the scope, growth, and causes of income inequality in an open U.S. economy. Explanations for the growing income inequality commonly fall under microeconomic and macroeconomic categories. Typical microeconomic explanations consider both demand and supply effects. The typical macroeconomic explanation argues that income inequal...

This chapter focuses on the measurement issues of macroeconomic and international forces as well as microeconomic factors. A relatively traditional approach was adopted using Current Population Survey (CPS) data to examine the effects of demographic and sectorial changes on wage inequality, but they also examine the impact of business cycle fluctua...

[The basic work of Polachek focusses on fundamental aspects of the general relation between trade and political conflict. But at any particular point of time, major shocks in the world economy may occur which can lead to drastic change in trade among many countries. Such was the oil shock of 1973. Today, the shock is the demise of the Warsaw Pact O...

This paper presents new evidence of currency substitution using the two-step estimator of cointegrated systems developed by Engle and Granger (1987). We estimate and find cointegration among variables suggested by the money-services model of currency substitution. Following Engle et al. (1989), we estimate an error correction model for each of five...

Theoretical rationales for the robust empirical relationships between the share of intraindustry trade between two countries and the average levels of, and inequalities between, their GDPs, per capita GDPs, and tariffs have either varied or not been demonstrated formally within a unified analytical framework. This study motivates theoretically the...

A general equilibrium model of world trade with two differentiated-product industries and two factors is developed to illustrate how the gravity equation, including exporter and importer populations, as well as incomes, "fits in" with the Heckscher-Ohlin model of interindustry trade and the Helpman-Krugman-Markusen models of intraindustry trade. Th...

Despite the gravity equations' empirical successes in "explaining" trade flows, the model's predictive potential has been inhibited by an absence of strong theoretical foundations. A general equilibrium world trade model is presented from which a gravity equation is derived by making certain assumptions, including perfect international product subs...

Typescript. Thesis (Ph. D.)--University of Wisconsin--Madison, 1981. Vita. Includes bibliographical references (leaves 256-261).

One of the most notable international economic events over the past 20 years has been the proliferation of bilateral free trade agreements (FTAs). Bilateral agreements account for 80 percent of all agreements notified to the WTO, 94 percent of those signed or under negotiation, and currently 100 percent of those at the proposal stage. Some have arg...