The causal effect of free trade agreements on the trade margins: Product‐level evidence from geographically distant partners

Abstract

We estimate the causal effects of free trade agreements (FTAs) on the trade margins by focusing on recent agreements involving geographically distant partners. Using border‐sharing countries as controls, our product‐level difference‐in‐differences estimates reveal that FTAs had positive and significant effects, with the extensive margin accounting for around half of the export growth. In terms of timing, the intensive margin effects preceded those of the extensive margin. At the sectoral level, our results indicate that the extensive margin drove export growth in sectors with differentiated products, whereas export growth in sectors with homogeneous products was due to the intensive margin.