The statistical analytic methods used are the latest structural gravity estimation procedure. The empirical literature on bilateral trade flow determinants using the gravity equation has progressively improved econometric specifications to account for potential bias, such as those derived from unobserved bilateral heterogeneity, multilateral resistance terms, zero trade flows or heteroskedastic residuals. The estimation strategy used follows that recently proposed by Larch et al. (2017) which, through an iterative PPML algorithm, allows us to account for all above issues in large datasets requiring to compute three types of high-dimensional fixed effects: country-pair, exporter-time, and importer-time fixed effects. We use the Glick and Rose (2016) dataset extended to include international arbitration dummy variables. The sample covers bilateral trade between over 200 IMF country codes between 1948 and 2013. The dependent variable (bilateral exports flows in U.S. dollars) comes from the International Monetary Fund Direction of Trade dataset. Currency union data rely on the IMF’s Schedule of Par Values and issues of the Annual Report on Exchange Rates Arrangements and Exchange Restrictions, supplemented with information from the Statesman’s Yearbook. Data on regional trade agreements are taken from the World Trade Organization’s website.
Our findings allow a better understanding of the economic impact of international trade law via three main contributions. Firstly, we revisit the impact of trade law on trade flows with robust empirical techniques. We join the current re-assessment wave in empirical trade analysis, which revisits the effects of economic integration agreements (e.g., Baier et al., 2016; Dai et al., 2014; Larch et al., 2017). Secondly, we widen the span of international trade law agreements, which previous studies overlooked. Thirdly, we show that international trade law agreements unrelated to private resolution of disputes have no positive effect on trade.