02221cas a2200265 a 4500 AALejournalIMF004966 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451869286 1018-5941 BD-DhAAL BD-DhAAL Papageorgiou, Chris. Trade Creation and Diversion Revisited : Accounting for Model Uncertainty and Natural Trading Partner Effects / Chris Papageorgiou, Christian Henn, Theo Eicher. Washington, D.C. : International Monetary Fund, 2008. 1 online resource (30 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Trade theories covering Preferential Trade Agreements (PTAs) are as diverse as the literature in search of their empirical support. To account for the model uncertainty that surrounds the validity of the competing PTA theories, we introduce Bayesian Model Averaging (BMA) to the PTA literature. BMA minimizes the sum of Type I and Type II error, the mean squared error, and generates predictive distributions with optimal predictive performance. Once model uncertainty is addressed as part of the empirical strategy, we report clear evidence of Trade Creation, Trade Diversion, and Open Bloc effects. After controlling for natural trading partner effects, Trade Creation is weaker - except for the EU. To calculate the actual effects of PTAs on trade flows we show that the analysis must be comprehensive: it must control for Trade Creation and Diversion as well as all possible PTAs. Several prominent control variables are also shown to be robustly related to Trade Creation; they relate to factor endowments and economic policy. Mode of access: Internet Eicher, Theo. Henn, Christian. IMF Working Papers; Working Paper ; No. 2008/066 Full text available on IMF http://elibrary.imf.org/view/journals/001/2008/066/001.2008.issue-066-en.xml IMF e-Library