[Tom Zylkin]

Thank you Tom for all your help!

One last question, and I think I am ready to analyze my results...
say there was a 22% increase in trade among safta members relative to their trade with non-safta countries, compared to if there had been no trade agreement, this percentage change could either be caused by 1) an increase in trade amongst safta members, or 2) a decrease in trade amongst non-trade countries? perhaps a combination of both ?

Kind regards,
Megan

Hi Megan,
This is a tricky question because theory suggests that whenever two countries lower their trade barriers against one another, it causes them to trade more with one another and less with other countries. In the empirics, it is not possible to say whether the 0.2 coefficient was caused by an increase in trade between the safta members or a decrease in trade with non-members (typically it would be both.)

Nonetheless, the short answer is that we do nonetheless typically say in the trade literature that eg "safta increased trade between safta members by 22%". However, usually we are careful to point out this is only a "partial effect" that holds supply and demand prices in each country fixed. In general equilibrium, these prices respond to safta as well and this is what causes trade to fall between safta members and non-safta members.

Regards,
Tom