Bilateral Trade - Explained
What is a Bilateral Trade?
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Table of ContentsWhat is a Bilateral Trade?Academics Research on Bilateral Trade
What is a Bilateral Trade?
Bilateral trade is a trade agreement between two countries. Generally it involves a plan for balanced trade between the two countries. That is, there will be no major deficit or surplus in trade between the countries.
Also, in bilateral trade, the two countries agree to reduce tariffs, remove import quotas, export restraints and all other barriers associated with the trade.
The Office of Bilateral Trade Affairs is in charge of the U.S bilateral trades. It has the aim of promoting trade, investment, and economic development between countries.
The 12 countries the U.S has a bilateral trade agreement with are: Israel (1985), Jordan (2001), Australia, Chile, Singapore (2004), Panama, Colombia, South Korea (2012) and with Bahrain, Morocco, Oman (2006), Peru (2007).
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Academics Research on Bilateral Trade
- [PDF]Determinants ofbilateral trade: does gravity work in a neoclassical world?, , Deardorff, A. (1998). Determinants of bilateral trade: does gravity work in a neoclassical world?. InThe regionalization of the world economy(pp. 7-32). University of Chicago Press.
- The puzzling persistence of the distance effect onbilateral trade, Disdier, A. C., & Head, K. (2008). The puzzling persistence of the distance effect on bilateral trade.The Review of Economics and statistics,90(1), 37-48. One of the best-established empirical results in international economics is that bilateral trade decreases with distance. Although well known, this result has not been systematically analyzed before. We examine 1,467 distance effects estimated in 103 papers. Information collected on each estimate allows us to test hypotheses about the causes of variation in the estimates. Our most interesting finding is that the estimated negative impact of distance on trade rose around the middle of the century and has remained persistently high since then. This result holds even after controlling for many important differences in samples and methods.
- Port efficiency, maritime transport costs, andbilateral trade, Clark, X., Dollar, D., & Micco, A. (2004). Port efficiency, maritime transport costs, and bilateral trade.Journal of development economics,75(2), 417-450. Recent literature has emphasized the importance of transport costs and infrastructure in explaining trade, access to markets, and increases in per capita income. For most Latin American countries, transport costs are a greater barrier to U.S. markets than import tariffs. We investigate the determinants of shipping costs to the United States with a large database of more than 300,000 observations per year on shipments of products aggregated at six-digit Harmonized System (HS) level from different ports around the world. Distance, volumes, and product characteristics all matter. In addition, we find that port efficiency is an important determinant of shipping costs. Improving port efficiency from the 25th to the 75th percentile reduces shipping costs by 12%. Bad ports are equivalent to being 60% farther away from markets for the average country. Inefficient ports also increase handling costs, which are one of the components of shipping costs. In turn, factors explaining variations in port efficiency include excessive regulation, the prevalence of organized crime, and the general condition of the country's infrastructure. Reductions in country inefficiencies, associated to transport costs, from the 25th to 75th percentiles imply an increase in bilateral trade of around 25%.
- Bilateral tradeflows, the Linder hypothesis, and exchange risk, Thursby, J. G., & Thursby, M. C. (1987). Bilateral trade flows, the Linder hypothesis, and exchange risk. Bilateral trade flows are used to examine the Linder hypothesis and the effect of exchange-rate variability in a gra vity-type trade model derived from an underlying demand and supply mo del. A behavioral model is used to justify examining these issues joi ntly.The model performs well empirically using a sample of seventeen countries for the period 1974-82. The authors find overwhelming supp ort for the Linder hypothesis and this version of the gravity model. Moreover, they find strong support for the hypothesis that increased exchange-rate variability affects bilateral trade flows.
- A generalized design for bilateral trade flow models, Baltagi, B. H., Egger, P., & Pfaffermayr, M. (2003). A generalized design for bilateral trade flow models.Economics letters,80(3), 391-397. This paper suggests a full interaction effects design to analyze bilateral trade flows. This is illustrated with an unbalanced panel of bilateral trade between the triad (EU15, USA and Japan) economies and their 57 most important trading partners over the period 19861997. Our full interaction model finds empirical support for the New Trade Theory and Linders hypothesis. We show that the omission of one or more interaction effects can result in biased estimates and misleading inference.