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Staggered Difference-in-Differences in Gravity Settings: Revisiting the Effects of Trade Agreements
Staggered Difference-in-Differences in Gravity Settings: Revisiting the Effects of Trade Agreements
Arne J. Nagengast
Yoto V. Yotov
American Economic Journal: Applied Economics (Forthcoming)
Abstract
We nest an extended two-way fixed effect (ETWFE) estimator for staggered differencein-
differences within the structural gravity model. To test the ETWFE, we estimate
the effects of regional trade agreements (RTAs). The results suggest that RTA estimates
in the current gravity literature may be biased downward (by more than 50%
in our sample). Sensitivity analyses confirm the robustness of our main findings and
demonstrate the applicability of our methods in different settings. We expect the
ETWFE methods to have significant implications for the estimates of other policy
variables in the trade literature and for gravity regressions on migration and FDI
flows.
