Impacts of FTAs on Agricultural Trade Creation and Trade Diversion: PPML or OLS?

This paper focus on dealing with zero trade value samples in gravity model. It evaluates agricultural trade creation and trade diversion effects of the most important FTAs using a Poisson Pseudo-Maximum-Likelihood (PPML) estimator. The analysis finds that PPML estimation is preferred to OLS and the estimated impacts of FTAs are different if zero trade observations are considered. The ASEAN-China PTA, EU-15, EU-25, and SADC agreements have generated large increases in agricultural trade among their members.