What Is Satire

Satire is a text or performance that uses irony, derision, or wit to expose or attack human vice, foolishness, or stupidity. Verb: satirize. Adjective: satiric or satirical. A person who employs satire is a satirist. Using metaphors, novelist Peter De Vries explained the difference between satire and humor: The satirist shoots to kill while the humorist brings his prey back alive—often to release him again for another chance.  Ã‚   One of the best known satirical works in English is Jonathan Swifts Gullivers Travels (1726). Contemporary vehicles for satire in the U.S. include The Daily Show, South Park, The Onion, and  Full Frontal with Samantha Bee. Observations Satire is a weapon, and it can be quite cruel. It has historically been the weapon of powerless people aimed at the powerful. When you use satire against powerless people, . . . it is not only cruel, its profoundly vulgar. It is like kicking a cripple. (Molly Ivins, Lyin Bully. Mother Jones, May/June 1995)Satire is a sort of glass, wherein beholders do generally discover everybodys face but their own, which is the chief reason for that kind of reception it meets in the world, and that so very few are offended with it. (Jonathan Swift, preface to The Battle of the Books, 1704)[S]atire is tragedy plus time. You give it enough time, the public, the reviewers will allow you to satirize it. (Lenny Bruce, The Essential Lenny Bruce, ed. by John Cohen, 1967) Twain on Satire A man can’t write successful satire except he be in a calm judicial good-humor; whereas I hate travel, and I hate hotels, and I hate the old masters. In truth I don’t ever seem to be in a good enough humor with anything to satirize it; no, I want to stand up before it curse it, foam at the mouth--or take a club pound it to rags pulp. (Mark Twain, letter to William Dean Howells, 1879) Housebroken Aggression While it may seem reckless to assert that satire is universal, there is much evidence of the extremely widespread existence of various forms of housebroken, usually verbal, aggression.Satire in its various guides seems to be one way in which aggression is domesticated, a potentially divisive and chaotic impulse turned into a useful and artistic expression. (George Austin Test, Satire: Spirit and Art. University Press of Florida, 1991)[A]busive satire is a wit contest, a kind of game in which the participants do their worst for the pleasure of themselves and their spectators... If the exchange of insults is serious on one side, playful on the other, the satiric element is reduced. (Dustin H. Griffin, Satire: A Critical Reintroduction. University Press of Kentucky, 1994) Satire in The Daily Show It is this blend of satire and political nonfiction [in The Daily Show] that enables and articulates an incisive critique of the inadequacies of contemporary political discourse. The show then becomes a focal point for existing dissatisfaction with the political sphere and its media coverage, while Jon Stewart*, as high-profile host, becomes a viewer surrogate, able to express that dissatisfaction through his comedic transformation of the real. (Amber Day, And Now . . . the News? Mimesis and the Real in The Daily Show. Satire TV: Politics and Comedy in the Post-Network Era, ed. by Jonathan Gray, Jeffrey P. Jones, Ethan Thompson. NYU Press, 2009)  In September 2015,  Trevor Noah replaced Jon Stewart as host of The Daily Show. The Rhetoric of Satire As ​a  rhetorical performance, satire is designed to win the admiration and applause of a reading audience not for the ardor or acuteness of its moral concern but for the brilliant wit and force of the satirist as a  rhetorician. Traditionally, satire is thought of as persuasive rhetoric. But [literary theorist Northrop] Frye, noting that rhetoric is not devoted solely to persuasion, distinguishes between ornamental speech and persuasive speech. Ornamental rhetoric acts on its hearers statically,  leading them to admire its own beauty or wit; persuasive rhetoric tries to lead them kinetically toward a course of action. One articulates emotion, the other manipulates it (Anatomy of Criticism, p. 245). More often than we have acknowledged, satire makes use of ornamental rhetoric...I do not mean to suggest that after the first century epideictic rhetoric served only as entertainment, or that in making use of epideictic rhetoric satirists do not seek to bring discredit on the ir subject (the enemy). . . . I am arguing that satirists implicitly (and sometimes explicitly) ask that we observe and appreciate their skill. It is to be suspected too that satirists judge themselves by such a standard. Anybody can call names, but it requires skill to make a malefactor die sweetly. (Dustin H. Griffin, Satire: A Critical Reintroduction. University Press of Kentucky, 1994) The Stranger That Lives in the Basement The general attitude toward satire is comparable to that of members of a family toward a slightly disreputable relative, who though popular with the children makes some of the adults a bit uncomfortable (cf. the critical evaluation of Gullivers Travels). Shunning is out of the question as is full acceptance...Unruly, wayward, frolicsome, critical, parasitic, at times perverse, malicious, cynical, scornful, unstable--it is at once pervasive yet recalcitrant, base yet impenetrable. Satire is the stranger that lives in the basement. (George Austin Test, Satire: Spirit and Art. University Press of Florida, 1991)

The Circular Flow Diagram Analysis - 1034 Words

The circular Flow diagram that I created above contains these sectors such as Domestic firms, Household, the rest of the world and Government. The diagram illustrates the continuous movement of money for goods and services between producers and consumers. The household sector includes everyone; such as you and me we are buying products from everyone and selling our work. So this is everyone who may be seeking to satisfy unlimited wants and needs. Households are responsible for consumption. It also owns all productive resources. The household interact more with domestic firms. The Domestic Firms includes institutions such as corporations and partnerships. Their job in the diagram is to combine resources to produce goods and services. So this means the responsibility for this sector is to produce. The Government sector which includes the federal and local government. This section contains of collecting taxes. The Rest of the world section provides imports and exports of services and goods. When we send money to firms we get products and services. We can also send the money to the rest of the world and that’s when we import goods. When money comes from the rest of the world to firms this is called exporting. Money that comes from Domestic Firms to households are wages or rent. We also see money going from household to government as taxes and the same with the domestic firms giving money to the government it is also taxes. Government to house holds which are transferShow MoreRelatedAshford ECO 204 Principles of Microeconomics1078 Words   |  5 Pagesï » ¿CLICK TO DOWNLOAD Ashford ECO 204 Principles of Microeconomics Week 1 Discussion 1: Circular Flow Diagram. Explain how the circular flow diagram relates to the current economic situation. Using the circular flow diagram, explain a way that your family interacts in the factor market and a way that it interacts in the products market. 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The expression of a model can be in the form of words, diagrams, or mathematical equations, depending on the audience and theRead MoreInvestigating The Behaviour Of Equipotential And Electric Field Lines Between Two Electrodes1491 Words   |  6 Pagesequipotential line markings Carbon paper -imprint the markings onto plain A4 Teledeltos paper - low electrical conducting material Results and Analysis Part A: Ideal parallel plate capacitor has electric field lines that are perpendicular to the plates surface (between the two plates) and also perpendicular to the equipotential lines. Diagram 1 (expected) Uncertainties This value was determined based on numerous measurements of the fluctuating voltagesRead MoreSoil Analysis : Soil And Soil1432 Words   |  6 Pages Soil Analysis Introduction- The purpose of this investigation was to identify the texture of the soil we collected, while learning the different methods used to determine soil texture. I hypothesized the soil we collected from the North side of the school would be Clay Loam. In the Soil Introduction Power Point we learned about the pedosphere. We discovered that soil houses both organic (materials containing carbon compounds) and inorganic matter (materials like minerals: phosphates and nitrates)Read MoreProject Analysis1082 Words   |  5 Pageslaneways. And it is used for acquiring primary data to understand the context, and to aware of our creative process (Carole Gray Julian Malins, 2004). This method assists in the development of the project through data findings and also cover as site analysis. Second, to understand the city grid and laneway structure is also generated by simulating several laneways accurate in dimension through design software AutoCAD and Google Earth. Third, the use of 3d models/maquettes to experiment with new formsRead MoreThe Cost Of Gas Prices1595 Words   |  7 Pagesto pay their debt (p.37). 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“Johnstown flood” by David McCullough Essay Sample free essay sample

â€Å"Johnstown flood† is a short narrative written by David McCullough. This narrative negotiations about the marvelous endurance of a small miss named Gertrude. Gertrude’s sheer fortune got her up the hill safely. Of class. with the aid of several people she met along the manner. I think that this is an extraordinary act of how worked together and some people put his/her life at hazard to salvage a little kid that they didn’t even knew. I fell that this is a great illustration of how human existences come together in times of demand and utmost danger and in the manner that we try to protect ourselves from catastrophe. The writer of this non-fiction narrative frames it in a really or highly revelatory manner. However I would hold non framed the narrative that manner. The ideal bordering for McCullough’s narrative in my sentiment should hold been presented as a societal affair in that clip. We will write a custom essay sample on â€Å"Johnstown flood† by David McCullough Essay Sample or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page I mean how the rich. with their power. stepped all over the hapless on the job category. This exact same job has perpetuated up to now. but now their oppressing the difficult working in-between category. And because of three really powerful people. we have really rigorous anti monopoly Torahs. These people are Andrew Carnegie. John D. Rockefeller and J. P. Morgan. These three dominant persons had the absolute power of the three most of import and meaningful imperiums. Andrew Carnegie was the male monarch of Fe and rail route. John D. Rockefeller ruled the crude oil industry. J. P. Morgan led the electric system. Andrew Carnegie and John D. Rockefeller had a personal feud caused by the decease of Carnegie’s wise man Thomas A. Scott. Carnegie vowed retaliation on Rockefeller by doing himself richer than him. This I think is stupid because you can non make any injury to a individual by being richer. My sentiment is that he ever had a desire to be rich. but he oppressed it and it came out with that decease so he could hold a significance for his money. I say â€Å"to complicated. merely take out a gun and shoot him† . Carnegie hired person to assist him do money. Thatâ€⠄¢s were Henry Frick comes in. Frick has the worst pick Carnegie of all time made. Henry took control of the company and made drastic steps. Carnegie approved. since it was salvaging him money. Frick built an sole gentlemen’s merely lake nine in the unreal lake on top of the South Fork dike. To do his sole nine he lowered the dike doing it weaker alternatively of stronger. That was what lead to the catastrophe of May 31. 1889. Rain started to fall and the H2O degrees of the dike started to lift. The dike could non perchance keep so much H2O. so it broke. Hundreds of gallons of H2O rushed down the vale rupturing trees. destructing houses and taking lives. After that. the work stoppage of 1892 appeared and the figure of deceases were amazing. The people needed person to take the mistake. they blamed Henry Frick. Returning to the narrative. David McCullough adds to the narrative some fictional things. idea it is a non-fiction narrative. like the natation mattes and a dead Equus caballus shattering against the kid. In my sentiment. the author did good in making that because it made the narrative a batch more interesting. Not merely was the narrative filed with suspense. but besides truly amusing. Just conceive ofing Juliana. a individual that is non taller than 4’7† . on top of a mattes. half bare and suddenly gets hit by a dead Equus caballus that comes out of nowhere. I mean come on. pretty amusing but neer in life a mattes can keep a person’s weight all wet in fast moving H2O. It’s impossible! And how the snake pit can horse. that God knows how much that Equus caballus weighted. floated and hit small Juliana in the face and so it got caught in a tree subdivision. and disappeared. It’s unbelievable how bantam Juliana was thrown from the mattes to a roof top. And how as if by magic the cat caught her without stealing. I say to that â€Å"DAHM. That girl fortune as snake pit. Eden. and limbo. and if I left out a religious class include it. † I can compare the narrative with Noah’s Ark from the bible. It is the same calamity of the universe stoping with H2O. The lone difference is that in the narrative it wasn’t the word that ended. it was a town and it took tonss of guiltless lives. Why? Because of the deficiency of humanitarianism and empathy that the rich have. Sometimes I would wish it if I saw those people in hard state of affairss and we did what they do. disregard so. merely to see how they would fell when people start looking at them over the shoulder. Treating them like soil. like Henry Frick treated all those hapless steel workers. He worked them until exhaustion and. in the work stoppage of 1892. killed some of them. He had no regard for the life of his workers. Possibly that’s why they tried to kill him. serves him right. Carnegie got off the Rhine wine with all the community work he did to unclutter his name. but he was merely every bit guilty as Frick. Andrew knew what was go oning. but didn’t do anything to halt Frick and his reign of panic in the Company’s vice-presidential term.

Equilibrium in the Duopoly Market-Free-Samples-Myassignmenthelp.com

Question: Discuss about the Monopolies, Duopoly and Oligopolies in Australia. Answer: Introduction Number of buyers and sellers define the characteristics of any market. Fewer the number of sellers larger is the market power of the seller. Supermarkets generally contain few large sellers. Hence, one can expect an oligopoly structure for the supermarkets. In the paper, supermarket structure for grocery sellers in Australia is observed. Two big retailers Woolworth and Coles are almost successful in eliminating most of their rivals and thus form a duopoly. The power of these two retailers is expected to influence the economic health of Australia. Essence of the story Chief of small business council, in a published article gives indication of possible duopoly in grocery business. While giving own opinion concernment of Shop Distributive and Allied Employees Association (SDA) is linked with the fact (NewsComAu 2017). There are there big organizations that greatly influence economic condition of Australia. The high or increasing penalty rate leads to closure of small business. This provides strength to large retailers. Thus the attrition policy of SDA indirectly assist the duopoly structure in the economy. Relaxation of regulation by SDA helps Woolworths and Coles to increase their market share and boosts SDAs membership. Therefore, Woolworths and Coles need not focus much on increasing their market share by improving their quality of service or providing additional discount or facilities to the customers (Heffernan 2017). The cost advantages enjoyed by them and increasing attrition are enough to expand their business. In the article, the chief has rejected the common suggestion for the supermarkets such as acting as pharmacies or arranging Lotto tickets sell. These suggestions are expected to destroy narrow pace of shopping leaving large shopping centres with large supermarkets and number of franchises as only option for the customers. Economic theories and concept Oligopoly In an oligopoly market, few sellers are found to sell differentiated or homogenous product to a considerable large pool of buyers. This form of market structure is considered in between the two states of market monopolistic competition and monopoly (Tyers 2015). Like monopolistic competition, there are sellers dominating their own brand product and like monopoly, there are price controls enjoyed by the few large sellers. Some of the key features of oligopoly markets are given below Figure 1: Major characteristic of oligopoly market (Source: Carlton and Perloff 2015) Interdependence in the strategies of sellers is an important feature of this market. This often leads to price war in the market. Rival sellers engaged in price war to undercut others share. In the price war those who have cost advantage in production dominates other (Elsner, Heinrich and Schwardt 2014). Woolworth and Coles, having such cost advantage wins in the price war and dominates grocery market. Duopoly The presence of two dominating seller in the oligopoly market reduces the oligopoly form to a duopoly one. Here, the strategies of two sellers are interconnected (Dunne, et al. 2013). This interdependence of the two firms is shown in the following diagram. Figure 2: Equilibrium in the duopoly market (Source: As created by Author) Behaviour of the firms are captured by their respective reaction functions. Equilibrium in the market is determined at the intersection points of two reaction curves. Monopoly Another reduced form of market structure is monopoly market. In the monopoly market, there is one seller controlling the entire market (Brander and Spencer 2015). This is a highly restrictive market where new entry or exit in the market is almost ceased. This gives the monopolist advantage of maintaining a supernormal profit in the market in contrast to competitive market that ends with just a normal profit (Baldwin and Scott 2013). Figure 3: Monopoly Market with Supernormal profit (Source: As created by Author) Woolworths and Coles that are now considered to form a duopoly can be a monopoly player by leaving the other behind. Recommendation Excessive concentration in market is not desirable. It hurts the economic health and consumer interest in the market. Hence, policymakers should design policies to break the concentration. One way is to encourage competition in the market. For this, medium and small retailers should be allowed to enter in the supermarket. Sometimes, exclusivity clause in the lease agreement restricts small or medium retailers from doing business in certain areas. Federal government should relax such restriction in lease agreement. Conclusion The news article indicates the influence of Woolworths and Coles in the grocery market in Australias supermarkets. Several factors affect the formation of duopoly structure in the grocery market. Among those, the major factor is high penalty rate increasing the attrition power of the two- retailers. High concentration in the supermarket has an adverse affect on buyers by reducing their surpluses in term of giving entire price control to the duo sellers. Measures should be taken to reduce the concentration and promote competition. References Baldwin, W. and Scott, J., 2013.Market structure and technological change(Vol. 18). Taylor Francis. Brander, J.A. and Spencer, B.J., 2015. Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation.Research in Economics,69(2), pp.157-165. Carlton, D.W. and Perloff, J.M., 2015.Modern industrial organization. Pearson Higher Ed. Dunne, T., Klimek, S.D., Roberts, M.J. and Xu, D.Y., 2013. Entry, exit, and the determinants of market structure.The RAND Journal of Economics,44(3), pp.462-487. Elsner, W., Heinrich, T. and Schwardt, H., 2014.The microeconomics of complex economies: Evolutionary, institutional, neoclassical, and complexity perspectives. Academic Press. Heffernan, M. (2017).Woolworths, Coles told it's not just the prices, stupid. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/retail/woolworths-coles-told-its-not-just-the-prices-stupid-20170302-gupq3l.html [Accessed 20 Aug. 2017]. NewsComAu. (2017).Business leader savages supermarkets. [online] Available at: https://www.news.com.au/finance/business/retail/small-business-chief-savages-coles-and-woolies-and-their-trade-union-ally/news-story/313cad799dc9df6c4b51dcfa36de2bb3 [Accessed 20 Aug. 2017]. Tyers, R., 2015. Service Oligopolies and Australia's Economy?Wide Performance.Australian Economic Review,48(4), pp.333-356.

Fashion as the Avatar of an Avant

10 Exploratory Essay Topics on Earthquake Prediction

10 Exploratory Essay Topics on Earthquake Prediction You have been asked to write an exploratory essay on whether earthquakes are predictable or not. Even though you have over 15 websites open in your window for reference, you can’t seem to dig up anything meaningful. Fret not, today is your lucky day because we are going discuss an extensive three-part guide on the subject. In this section, you’ll find ten very informative facts on earthquake prediction while the next section is titled 20 topics on earthquake prediction for an exploratory essay, will help you select a good topic. There’s also a sample essay on one of those topics and finally, the third part of this guide discusses how to write the essay itself. We assure going through this guide, your exploratory essay will be exceptional and help you get full credit. Here are 10 facts on earthquake prediction for an exploratory essay:   Ã‚  Ã‚  To this day, there hasn’t been a system that can predict an earthquake, big or small, with 100% accuracy. Too often predictions have been labelled false alarms. The false-alarm label has made it very difficult to differentiate a particular detection system that shows real-time and accurate predictions rather than those relying on chance or estimates.   Ã‚  Ã‚  The elements leading up to an earthquake are multidimensional. Therefore, it is important to factor in space, magnitude and time-related aspects of the earthquake. It is important to come up with forecasts that are based on a probabilistic analysis because of the uncertainty in prediction parameters. It is not feasible that the predictions are deterministic; the forecast of seismicity should be based on statistical analysis. Even if the forecast is deterministic, it is important that its evaluation should be statistical to remove any possibilities of coincidence.   Ã‚  Ã‚  One very important parameter that needs to be considered during an earthquake forecast is the focal mechanism. According to a US Geological survey by Dziewonski, Ekstrom Salganik done in 1996, the Forecasts of modern day earthquake cataloguing should include information collected from seismic moment tensor inversions. Focal mechanisms along with time-space-size are all very important parameters of an earthquake. Through them, we can calculate low-frequency seismograms or static deformation of an event.   Ã‚  Ã‚  Among all the proposed methods for the prediction of earthquakes, there is a lack of quantitative theory, therefore, they should all be considered as empirical methods. Some of these methods are earthquake clustering, seismicity variations, changes in seismic velocities, anomalous animal behavior, precursory strain, hydrological signals, and variations in geochemical and electromagnetic signals. One of these methods can be considered a quantitative forecasting method, and that’s earthquake clustering.   Ã‚  Ã‚  Quantitative methods can predict earthquakes far more efficiently because it’s an intricate process. Global tectonic gives us information about the strain accumulation on plate boundaries, and through various geological and geodetic methods, tectonic deformation can be measured. Another quantitative method is studying the low and state frequency deformation which occurs in faraway fields due to earthquakes through the linear elasticity theory, resulting in the prediction of earthquakes, because we are able to study the accumulated strain of earthquake.   Ã‚  Ã‚  Earthquake predictions are done for a few months, a year to a decade or beyond a decade. These timescales depend on the earthquake mitigation measures or the technique used. Seismicity has an invariant scale, that’s why it’s not possible to define a real-time temporal feature scale of earthquakes. There are, however, two physical scales; the first one is connected to the propagation of earthquakes and elastic waves and the second one is about the velocity of tectonic deformation. The first scale comprises seconds or tenths of seconds due to the focal area size and the zone of extreme shaking, while the second one comprises decades or even millenniums because it’s taken from the accumulated strain mostly released by the largest earthquakes.   Ã‚  Ã‚  Evaluation of earthquake predictions should also have a comparative test of null hypothesis in it so that coincidences and chance based results can be disregarded. Temporal clustering of seismicity and spatial variations should be included in the null hypothesis. It is much easier to devise null hypothesis for extreme earthquakes because their clustering is weak for at least a couple of years. Therefore, the Poisson process can at times work on behalf of null hypothesis. Though the spatial inhomogeneity of the epicenter of earthquake does create problems in the process of evaluation.   Ã‚  Ã‚  Computer simulations of earthquakes haven’t proven to be of much help either. The calculations of fluid dynamics can be cross-referenced with the actual velocity field. While simulated synthetic earthquakes may catalogue, it needs to be matched with the real one. The problem is the spontaneous nature of seismicity; the mathematical calculations of earthquake occurrence can only be done in statistical terms. If the computer is to model seismicity, it needs to have synthetic sequence which has the same statistical characteristics of a real earthquake with respect to time and space. This is where the real problem develops.   Ã‚  Ã‚  We now have the computing power and the capability to calculate mass calculations of seismic moment tensor. We can also monitor the connection of stress tensors with earthquake. Recent studies have shown that there is a relationship between stress and earthquakes. Difficulties have occurred due to the translation into the designs of stress accumulation, earthquakes and stress tensors.   People assume that if the weather can be predicted so can the earthquakes, but there are a lot of differences. Earthquakes are asymmetric in terms of time and amount of foreshocks are very negligible. Since seismicity is asymmetric in nature, it is different from the flow of fluids which are turbulent; this is why prediction of earthquakes is more difficult than the prediction of weather. These facts will significantly help you in starting your research. There is just so much that you can write about on the subject of earthquake prediction. We can also understand if selecting a topic is giving you a tough time. Not to worry, the next part will surely give you more information to go on. References: Earthquake Storms: The Fascinating History and Volatile Future of the San Andreas Fault. (2014). S.l.: Pegasus Books. Advances in Earthquake Prediction. (2008). Berlin: Springer-Verlag Berlin and Heidelberg GmbH KG. Earthquake Prediction with Radio Techniques. (2015). S.l.: John Wiley Sons (Asia) Pte. Earthquake Time Bombs (2015) Hough, S. E. (2010). Predicting the unpredictable: The tumultuous science of earthquake prediction. Princeton: Princeton University Press. Kagan, Y. (2015). Earthquakes: Models, Statistics, Testable Forecasts. Chichester: Wiley Sons. Lomnitz, C. (1994). Fundamentals of earthquake prediction. New York: John Wiley Sons.

Video case Harley-Daivdson Study Example | Topics and Well Written Essays - 500 words

Video Harley-Daivdson - Case Study Example s world-famous as an American icon, offering an extremely wide range of Harley-Davidson branded products, including both practical and stylish clothing as well as accessories and merchandise. One way that Harley-Davidson connects with its customers is through the Harley owners club. This is supported financially by the company and is the largest club of its type in the world. The presence and activity of the club serves as a way of advertising and connecting both owners of Harley’s and those who see them with the brand. The club gives a large feeling of comradeship and connectedness to those who ride together even though they are often strangers. The club gives the opportunity for members of the company to interact with customers on a face-to-face basis, as well as for the customers to interact with one another. The brand is not the only way that Harley-Davidson builds customer relationships. Another way is through value. Value is an important part of any customer-business relationship, the customer needs to know that what they are buying is worth the money, and that it will last. Harvey-Davidson promotes the concept of value for their motorbike. Their advertising campaigns often focus on the durability and the image of the motorbike, showing a rider driving past just after showing a boat or another vehicle type breaking. 2. A value proposition relates to the concept that the product is of higher value than competing products in the same market. Value can be described as the benefits derived from the product minus the cost, where the cost also includes the risk. When it comes to owning a Harley, the costs can include costs of running, storing and maintaining the bike, however these are similar if not identical costs as for competing companies. The company focuses on ensuring that their bikes are of good quality, and that they do not require excessive repairs, as a consequence not requiring as much cost in this area. However, this is not their main focus in

Cold War and US Intervention in Latin America Essay

Cold War and US Intervention in Latin America - Essay Example The latter created an Eastern Bloc of countries, annexing them and designating them as Satellite countries. It was in fact these countries which later formulated the Warsaw Pact. United States, on the other hand adopted a policy of "containment" of communism, forming alliances with several countries, and eventually signing the North Atlantic Treaty Organization. (LaFeber) Communism was gaining rapid popularity immediately after the World War II. To check the spread of Communism, the then US President Harry S Truman, laid down a set of principles pertaining to the US foreign policy, which indirectly authorized the policy of containment of communism. Under the policies of this doctrine, the US intervened in the Civil War of Greece, in an attempt to prevent Greece's falling to the Soviet Union. This intervention was followed by many similar ones to overthrow communist forces. The first of these interventions came in 1954 in the form of Guatemalan coup d'tat, when the United States' Central Intelligence Agency (CIA) organised a military intervention to overthrow Jacobo Arbenz Guzmn, the democratically-elected President of Guatemala. The United States speculated Soviet influence and declared that the policies of the Arbenz government were Communist in nature. This operation lasted for nearly 10 years, during which an army of over 400 fighters was trained to fight against the national forces of Guatemalan. This, coupled with the economic and political sanctions levied by the US, achieved its end when Arbenz officially resigned. The most historical of these interventions was the US response to the Cuban Revolution, which bought the world on the verge of a nuclear war. Tensions grew between the two countries when Cuba became a member of the Non Alignment Movement. The US imposed trade restrictions on Cuba, soon after it implemented some nationalizations. When all trade exchange between US and Cuba ceased in October 1960, Cuba turned to Soviet Union for assistance. This triggered an intense backlash from the US, which launched a full fledged policy of destabilising the Cuban government. This policy incorporated political, economic and military action, including the famous Bay of Pigs Invasion to overpower Fidel Castro's administration. This was followed by a military coup in Brazil in 1964 to overthrow Joo Goulart in 1964, and a similar regime in Dominican Republic in 1965. Besides these, the US also tried to contain Communist influence in Argentina, Ecuador, Honduras, and Peru. Influence of the Civil Rights Movement on the New Left The American Civil Rights Movement, which roughly extended from the 1945 to 1970is one of the most celebrated movements in the history of mankind. It primarily dealt with the African Americans' demand for equality, but along its course, it encompassed several other issues dealing with the basic civil rights. As a matter of fact, it merged with different social movements like the Second Wave of Feminism, the Anti Vietnam war protests, the growing Hippie culture etc. thus, it influenced and in turn was itself influenced by many other movements. The New Left emerged in the United States in the 1960's. It comprised of a group of young liberal, sometimes even radical college students of the US, who adopted a new form of political ideology called the social activism.

Describe the main features of virture project management techniques in Essay

Describe the main features of virture project management techniques in the digital age and provide a critieal reflection on their use in managing projects - Essay Example The study has been conducted in several stages. The first stage was a review of relevant literature, followed by a discussion on specific topics. Leading textbooks on PM and publications in various journals have been referred to. The study has been laid out in several sections. Sections include principal characteristics of virtual and global projects; attributes of virtual teams and communication channels; motivating teams and PM environment; agile PM; change management for agile PM; and conclusion. Throughout the study, the focus has been on the agile aspect of PM. Ideas, human resources, products, services, and skills move freely regardless of boundaries in global economies. The flow of knowledge, products and services, and capital reflects the economic interdependence between organizations and countries. In globalized economies, resources could be obtained in one market and used for business in another. For example, it is possible to purchase manufacturing equipment from Germany, make products in Greece, and sell products all over Europe. In summary, a firm’s competitive environment is shaped by the global economy. A significant change in the practice of PM has been information management. Burke (2008) observed that the availability of powerful software has seen a shift in data processing from a separate department to the professional’s desk. Project planning software helps the project manager plan and control projects. However, it can be effective only when planning and control techniques are clearly understood. Projects are generally subdivided into different phases for ease of management. These phases are collectively termed as the project lifecycle. According to Burke (2008) techniques for PM include critical path method; work breakdown structure; earned value; resource smoothing; and configuration control. According to Cadle and Yeates (2004) characteristics of projects include finite and transitory nature; uniqueness;

Effect on Trade Flows of Regional Trade Agreements

Effect on Trade Flows of Regional Trade Agreements Abstract This paper studies the effect on trade flows of RTAs signed between developing economies. It uses a variation of the gravity model of trade to asses five RTAs: Mercosur, The Andean Community, SICA, the EU, Chile-China. Contents Abstract iii List of Figures vi List of Tables vi List of Formulas vi 1. Introduction viii 1.1Background viii 1.2 Problem definition x 1.3 Research Objective x 1.3.1 Major research question x 1.3.2 Minor research question xi 1.4 Theoretical Framework xi 1.4.1 The Gravity model of trade xi 1.4.2 Research Methodology and Design xii 1.4.3 Research Assumptions xii 1.4.4 Research Limitations xii 1.5 Thesis Structure xiii 2. Literature Review xiii 2.1 Trade Creation and Trade Diversion xiv 2.1.1 Trade Creation xiv 2.1.2 Trade Diversion xvii 2.1.3 Gross Trade Creation xviii 2.2 Empirical Evidence from SS RTAs xx 3.Theoretical Framework and Research Methodology xxi 3.1 Theoretical Framework xxi 3.1.1 Multiple Regression Analysis and Model Building xxi 3.1.2 Regression Model Diagnosis xxii 3.1.3 The Gravity Model of Trade xxiii 3.1.4 Research Assumptions xxvii 3.1.5 Research Limitations xxvii 3.2 Research Methodology xxvii 3.2.1 Research Type and Approach xxvii 3.2.2 Data Collection xxx 4. Findings and Results xxxi 4.1 The effect of RTAs xxxi 5. Conclusions xxxiii 6. Appendix xxxiv 7. References xxxvii List of Figures Figure 1 Trade Creation. Figure 2 Trade Diversion Figure 3 Trade Creation Proper vrs. Gross Trade Creation Figure 4 Multiple regression hyperplane List of Tables Table 1 Dummy Variable Interpretation.. Table 2 RTAs assessed and Members Table 3 Regression results of individual years Table 4 Regression results of PCS List of Formulas Formula 1 Gravity model equation Formula 2 Log linear form of the gravity model Formula 3 Current gravity specifications.. Abbreviations CGE: Computable General Equilibrium COMESA: Common Market for Eastern and Southern Africa FTA: Free Trade Agreement GATT: General Agreement on Tariffs and Trade GDP: Gross Domestic Product MERCOSUR: Mercado ComÃÆ' ºn del Sur RTA signed between Brazil, Argentina, Uruguay and Paraguay NAFTA: North American Free Trade Agreement OLS: Ordinary Least Squares PCS: Pooled Cross-Section PTA: Preferential Trade Agreement RIA: Regional Integration Agreement RTA: Regional Trade Agreement SICA: Sistema de IntegraciÃÆ' ³n Centro Americana RTA between Honduras, Costa Rica, El Salvador, Guatemala, Nicaragua Panama and Belize SS: South-South UNCTAD: United Nations Conference on Trade and Development WB: World Bank WITS: World Integrated Trade Solution WTO: World Trade Organization 1. Introduction Background Four hundred and sixty two RTAs have been notified to the WTO up to February 2010 (WTO,2010). From 1948-1994 the GATT received one hundred and twenty four notifications of RTAs, and since its creation in 1995, the WTO has received over 300 RTA notifications, (WTO,2010). This trend of forming trading blocs is likely to become stronger as more RTAs are currently under negotiation. Of particular interest to economists, and the focus of this paper, are South-South RTAs, that is, RTAs signed between countries of low income levels. There are reasons to believe that SS RTAs may not only fail to stimulate economic growth among member countries, but also hinder growth for these countries. In their book Regional Integration and Development, Winters and Schiffer (2003) state that there is some evidence that North-South RTAs stimulate economic growth in the southern partner, little evidence that North-North RTAs stimulate growth and NO evidence that South-South RTAs do so. Specifically they argue that SS RTAs do not provide partners with access to technology or knowledge that is characteristic of rich countries; SS RTAs are unlikely to add credibility to government policies and may even hinder investment if not accompanied by liberalization of trade with the rest of the world; and, SS RTAs are likely to generate only trade diversion and no trade creation Mayda and Steinberg (2006) argue that SS RTAs are unlikely to provide the positive effects of competition and economies of scale because partner countries are both small and poor. In addition, the loss of fiscal revenues harms the member country economies and finally, SS RTAs are more likely to divert trade rather than create trade. Willmore (1976) and Nicholls (1998) make similar points using the Central American Common Market as an example. Trade creation and trade diversion are concepts that were introduced by Jacob Viner in 1950. Both terms refer to the redirection of trade flows as a consequence of an RTA. In trade creation, goods that were previously produced by a local economy are instead imported from more efficient producers in countries within the RTA. Trade diversion refers to the redirecting of trade from the more efficient producer to a less efficient producer within the RTA. In both cases, trade creation and trade diversion, the trade flows are affected by the reduction of tariffs to member countries typical of RTAs. Trade creation and trade diversion are explained with more detail in section 2.1 of this paper. A number of studies have been conducted to assess the effects of SS RTAs in partner countries -most of them attempt to determine if the RTAs were trade creating or trade diverting e.g. Evans (1998), Lewis et al. (1999), Flores (1997), Cernat (2001,2003)), Subramanian and Tamirisa (2001), Mayda and Steinberg (2006). Different methods have been used and the results are mixed. As a reference, this paper focuses on the results of Cernat (2001, 2003), Flores (1997), and Mayda and Steinberg (2006). Different methods were used in these studies and the results were mixed. Cernat (2001) used the log-linear form of the gravity equation to assess nine SS RTAs. He finds evidence that suggests that SS RTAs are less trade diverting than theoretically predicted. Cernat (2001) findings suggest that Mercosur and the Andean Community were overall, trade diverting. On the other hand Flores (1997), using a CGE analysis, concluded that Mercosur was trade creating. Mayda and Steinberg (2006) use a difference-in-difference estimation strategy at commodity level to assess the impact of COMESA on Ugandan imports. They present evidence that South-South trade agreements create positive but little economic gains, through changes in trade patterns, for their members. This is different from Cernat (2001) results, which indicate that imports into COMESA members from third countries were on average 30 per cent higher than those predicted without the trade diversion dummy variable. Mayda and Steinberg (2006) find evidence that no trade diversion takes place in COMESA. The mixed results from these studies, the increasing number of SS RTAs underway and the high number of countries wanting to join completely or in part in these RTAs poses the following questions: Why do policy makers from these countries advocate in favor of these RTAs? Should these RTAs be pursued?, and the still not categorically answered question: Are South-South Regional Trade Agreements trade creating or trade diverting? Using the gravity model, this paper aims to get evidence from SS RTAs from the Americas. 1.2 Problem definition Do South-South Regional Trade Agreements create trade or divert trade? The literature on this topic is vast and contradictory. Everybody thinks that SS-RTAs are trade diverting. Some papers present evidence of this. Other present evidence that they are actually trade creating. Finally others find evidence of very little trade creation and no significant evidence of trade diversion. With so many RTAS in place and many others underway, it is important to understand the effects of creating these trade blocs. Should poor countries pursue RTAs with poor countries? Are SS RTAs building blocks or stumbling stones towards the world liberalization of trade? 1.3 Research Objective The main objective of this paper is to determine if MERCOSUR, Andean Community, and SICA were trade creating or trade diverting in the years 1995, 1998, 1999, 2003, 2007. 1.3.1 Major research question Is there significant evidence of trade creation or trade diversion on the years 1995,1998,1999,2003,2007 for Mercosur, Andean Community and SICA? 1.3.2 Minor research question Is there significant evidence that suggests that RTA members of the above mentioned RTAs increased trade between them and their partners? Is there significant evidence that suggests that members of the above mentioned RTAs increased trade between them and third countries? Is there significant evidence that suggests that the increase in trade between RTA partners of the above mentioned RTAs is higher than the decrease in trade between RTA members and third countries? 1.4 Theoretical Framework 1.4.1 The Gravity model of trade The gravity model uses Newtonian gravity principles to study human behavior. It is widely used by economists and social scientists to predict flows of trade, people, goods, money, and other variables as an effect of changes in economic policies, fiscal policies, new laws, bans and other distortions to the flow of a given variable. The original gravity model of trade assumes that two countries will trade more or less depending on the sizes of their economies and the distance between their economic centers. It was created independently by Tinbergen (1962) and PÃÆ' ¶yhÃÆ' ¶nen (1963) and augmented in later years to include other independent variables that may cause a change in trade flows. These augmented versions of the basic gravity model may include: population of the two countries, presence of common borders, same language, common colonizer, and others that the researcher regards as relevant. The gravity model specifications used in this paper are similar to those of Cernat(2001) and Cheng Hall (2003). These specifications are used to run OLS regressions on trade data of 1995, 1998, 1998, 2003 and 2007. One set of pooled data including the years mentioned is analyzed using the same gravity specifications. The results of these regressions provide evidence of gross trade creation and diversion as specified by Balassa (1967) 1.4.2 Research Methodology and Design The paper uses standard OLS analysis, with bilateral imports as a dependent variable and 17 independent variables: GDP of the importing country, GDP of the exporting country, Population of the importing country and population of the exporting country, distance between the capital cities of each country pair, Intra_x dummy variable for each RTA, Extra_x dummy variable for each RTA. The values of GDPs, distance and populations are used in their logarithmic form. GDPs and population data was collected from the WB databank. Trade data was collected from UNCTADs database using the WB banks WITS application. 1.4.3 Research Assumptions Costs of transportation are proportional to the great circle distance between economic centers of countries studied All countries have one economic center, namely their capital cities. The error coefficient of the log-linear gravity model used in this paper is normally distributed with a mean of zero and constant variance for all observations. It is also assumed that error pairs are uncorrelated. GDPs, population, and trade data collected belongs to the population 1.4.4 Research Limitations 1.5 Thesis Structure The remainder of this paper is organized as follows: Chapter 2 presents a literature review that explains trade creation and trade diversion, the effect of both and findings of previous papers that assess RTAs. Chapter 3 explains the gravity model used on the paper, how data was collected and organized, and the considerations in analyzing data. Chapter 4 summarizes the findings and Chapter 5 concludes. 2. Literature Review There is extensive literature on RTAs. This literature either predicts the effects of a RTAs using a computable-general equilibrium analysis or they measure the effects of an FTA using aggregate data or commodity level data. The concern of most authors, and the reason why they conduct their research, is that FTAs and specially SS FTAs may divert trade rather than create it. In the former case, purchases from an efficient producing country are replaced by purchases of a less efficient FTA partner. This section serves three purposes: 1. It explains trade creation and trade diversion to the reader so she can better understand the methodology used to assess the selected RTAs. 2. It presents the reader with the results of previous findings so that the reader can compare the results of this paper with previous results of other authors. 3. It gross trade creation and diversion so that the reader can understand the results of the research. 2.1 Trade Creation and Trade Diversion Trade creation and trade diversion as defined by Viner (1950), refer to changes in flow of trade between nations. Trade creation happens when trade is switched from less efficient producers of one country to more efficient producers in another country a better allocation of resources. In trade diversion trade is shifted from more efficient producers in one country to less efficient producers in another country -a worsening in the allocation of resources. 2.1.1 Trade Creation Trade creation can be defined as the net welfare gain that results from the initiation of an RTA, both on the production and on the consumption side. Some economists though, think that it is more precise to think of trade creation only as the increase in welfare from the production side (Senior-Nello S, 2010). In this paper the former definition of welfare is considered. To understand trade creation, imagine the following scenario (Figure 1): The country in question, Country X, say Honduras, imports product Q from country M (United States) at price Pw+t, which includes an ad valorem tax and is the same price offered by other nations in the world, including country E (El Salvador). At this price, Honduras imports 20 units and consumes 60. The remaining 40 units are imported from the US. This is illustrated by the Honduran supply and demand lines in Figure 1 and the perfectly elastic supply curve with free trade of El Salvador. It is understood that a change in Honduran imports of product Q cannot affect the world price of product Q. Figure 1. Trade Creation If Honduras signed an RTA with El Salvador and the price of product Q from El Salvador dropped to PE, Honduras would now produce 10 units of product Q, consume 70, and import the difference of 60 units. Because El Salvador now offers a lower price for product Q, Honduras now imports this product from El Salvador and not from the US. The consumer surplus gains of this RTA are represented by areas a+b+c+d. The loss in producer surplus is indicated by area a. The loss of tariff revenue for Honduras is area c. Therefore the net welfare increase of this RTA between El Salvador and Honduras is indicated by triangles b and d. Triangle b represents the amount of production that was shifted from less efficient producers in Honduras to more efficient producers in El Salvador a better allocation of resources. Triangle d represents the increase in consumption of product Q. 2.1.2 Trade Diversion Trade Diversion is illustrated in figure 2. Again the supply and demand lines are those of Honduras for product Q. Line S1 and S2 are the perfectly elastic supply curves of USA and El Salvador respectively, and lines S1+t and S2+t are the tax inclusive supply curves of the same two countries. Figure 2. Trade Diversion Honduras imports product Q from the US at tax inclusive price Pw+t. El Salvador offers product Q at price PE+t and thus does not benefit from Honduran purchases. At price Pw+t Honduras produces 20 units, consumes 60, and imports 40 from the US. If Honduras and El Salvador now form an RTA and do not include the US, tariffs will be removed on imports from El Salvador but not from imports from the US. After forming the RTA Honduras would produce 10 million units, consume 80 million and import 60 million units of product Q from El Salvador at price PE. The RTA has diverted trade from more efficient producers in the US to less efficient producers in El Salvador, so there is a worsening in the allocation of resources. On the other hand 10 million units are now imported from El Salvador instead of being produced at home in Honduras. At the same time 40 million units that were previously imported from the US are now being imported from El Salvador. The welfare loss from trade diversion is reflected rectangle f. The 40 million units that were imported from more efficient producers in the US whose free trade price is $1.00 are now imported from El Salvador at $2.00. The welfare loss is $40 million. The welfare gain from the customs union is calculated as the areas of triangles b and d. Triangle b is the welfare gain in the production side: $5 million. Triangle d is the welfare gain in the consumption side: $10 million. The total impact on welfare as a result of the RTA is given by the sum of the areas of triangles b and d minus the area of rectangle f (b+d-f): welfare gain minus welfare loss. In this case the RTA generated a welfare loss of $25 million. Figure 2 illustrates that the idea of trade creation and trade diversion can be misleading. If, for example, the sum of areas of triangles b and d would be greater than the area of rectangle f, the RTA would cause a net welfare gain. In this scenario, although trade has been diverted from more efficient producers in one country to less efficient producers in another, the RTA increased welfare for the RTA signing country. 2.1.3 Gross Trade Creation Following the lead of Jacob Viner, Balassa (1967) evaluated the effects of the European Common Market with reference to its trade creating and trade diverting effect using Tinbergen (1962) and PÃÆ' ¶yhÃÆ' ¶nen (1963) model -the gravity model. In his work he developed model that captured substitution of less efficient domestic and foreign suppliers for more efficient foreign suppliers gross trade creation; which is different than Viners definition of trade creation according to which trade is created only at the expense of local producers. To illustrate the difference gross trade creation and trade creation proper as defined by Viner (1950), consider three trading partners of one particular product countries A, B, and C, product Q (See Figure 3). Before signing a RTA with country B, Country A imports product Q from both, Country B and Country C in equal amounts and has 4 local producers of the same product (Figure 3a). In the case of trade creation proper (Figure 3b), after signing a RTA with country B, Country A continues to import equal amounts of product Q from countries B and C but has reduced the number of local producers of the same product. More efficient producers in Country B have absorbed market share from local producers in Country A trade creation proper. Gross trade creation on the other hand (Figure 3c), considers that trade is created not only when local producers are substituted, but also when producers in third countries are substituted. In this case, after signing a RTA with country B, Country A decreases its imports of product Q from Country C and increases imports of the same product from Country B while keeping the same number of local producers. It is important to note that gross trade creation assumes that substituted producers in Country C were less efficient than producers in country B; the contrary would constitute trade diversion. Figure 3. Trade Creation Proper vrs Gross Trade Creation Like in Cernat (2001), this paper evaluates the gross trade creating effects of the assessed RTAs. In his paper, Balassa (1967) provides evidence of trade creation in the European Common Market during six years since the Markets establishment. Again, trade creation applies to the substitution of any less efficient producer for a more efficient one, independent of the producers base country. The why of the expected differences between the results of developed country RTAs and SS RTAs is explained in the next section. 2.2 Empirical Evidence from SS RTAs A number of studies have been conducted to assess the effects of SS RTAs in partner countries -most of them attempt to determine if the RTAs were trade creating or trade diverting e.g. Evans (1998), Lewis et al. (1999), Flores (1997), Cernat (2001), Subramanian and Tamirisa (2001), Cernat (2003), Mayda and Steinberg (2006). Different methods have been used and the results are mixed. This paper uses methods similar to Cernat (2001) and Cheng Wall (2003). In his paper, Cernat(2001) used the log-linear form of the gravity equation to asses nine SS RTAs. He finds evidence that suggests that SS RTAs are less trade diverting than theoretically predicted. Cernats(2001) findings suggest that Mercosur and the Andean Community were overall, trade diverting. Mayda and Steinberg(2006) use a difference-in-difference estimation strategy at commodity level to assess the impact of COMESA on Ugandan imports. They present evidence that South-South trade agreements create positive but little economic gains, through changes in trade patterns, for their members (Mayda and Steinberg, 2003). This is different from Cernats(2001) results, which indicate that imports into COMESA members from third countries were on average 30 per cent higher than those predicted without the trade diversion dummy variable. Mayda and Steinberg (2006) find evidence that no trade diversion takes place in COMESA. The mixed results from these studies, the increasing number of SS RTAs underway and the high number of countries wanting to join completely or in part in these RTAs poses the following questions: Why do policy makers from these countries advocate in favor of these RTAs? Should these RTAs be pursued?, and the still not categorically answered question: Are South-South Regional Trade Agreements trade creating or trade diverting? Using the gravity model, this paper aims to get evidence from SS RTAs from the Americas. Theoretical Framework and Research Methodology ***Intro*** Problem Definition Research Objective Research Questions 3.1 Theoretical Framework 3.1.1 Multiple Regression Analysis and Model Building Figure 4. Regression Hyperplane Multiple regression analysis is a method of inferential statistics that measures the relationship between two or more independent variables and one dependent variable. The multiple regression model is given by: Where: y = dependent variable = regression constant of the population = regression coefficient for each variable xj=1,2,k k = number of independent variables = error of the model Different from a simple regression equation -which forms a straight line in a two-dimensional space to represent the linear relationship between two variables the multiple regression model forms a hyperplane in a multidimensional space (Figure 4). This hyperplane represents the relationship between the dependent variable and k independent variables. To build a multiple regression model, that is, to construct a mathematical equation that represents the relationship between independent and dependent variables, a researcher must decide: The question that needs to be answered The potential independent variables What is a representative sample of the population should be at least four times the number of independent variables (Groebner, et al, 2008) The model used in this paper is well known and widely used by social scientists to measure the flow of various types of variables. This model is explained in section 3.1.3. 3.1.2 Regression Model Diagnosis To ensure the significance of an OLS regression analysis results, the following evaluation criteria are usually used (Groebner, et al, 2008): The coefficient of determination (R2 and R2 adjusted) Significance of the overall model (F-test) Significance of individual variables (t-tests) Size of the standard deviation of the model Multicollinearity of variables The coefficient of determination measures the proportion of variation in the dependent variable that can be explained with the independent variables used by the model. The value of R2 may range from 0-1, with 1 representing a perfect linear relationship between dependent and independent variables. Higher values of R2 are preferred as they would indicate that the chosen independent variables explain better the variations in the dependent variables. A derivate indicator, called adjusted R2, takes into account the number of independent variables in the model, and their contribution the variations in the dependent variable. Because R2 increases when independent variables are added to the model, even if the new variables have no relationship with the dependent variable, adjusted R2 evaluates the model more precisely. The Significance of the overall model can be determined by comparing the Significance F value given in the regression output of a statistical software application, and the critical value for a given alpha level. The critical value for a given alpha level is determined using t-tables and statistical procedures explained in Groebner (2008). The Significance of individual variables is determined by comparing their calculated t-values with the critical t-value of the model. If their calculated t-values are greater than their critical t-values the variable is considered significant. To determine the critical t-values of independent variables, degrees of freedom need to be calculated and interpolated with the desired level of significance in a t-table. For detailed explanations see Groebner (2008). The size of the standard deviation of the model measures the dispersion of observed values of the dependent variable, and the predicted values for the same variable. It is up to the researcher to determine an acceptable range for the standard error estimation. Multicollinearity occurs when two variables provide overlapping information to explain the variation in the dependent variable. To measure multicollinearity the researcher can use the VIF as an indicator. Generally, if the VIF 3.1.3 The Gravity Model of Trade Following Isaac Newtons principle of gravity, according to which two bodies will attract each other more when their sizes are increased and the distance between them is shortened; the gravity model explains trade flow between two countries based on the size of their economies and the distance between their economic centers. The equation representation of the gravity model of trade is: (Formula 1) Where Fg represents trade flow, G is the constant, m1 and m2 are the economic dimensions of the two countries in question, and d is the distance between the two countries. In its basic log-linear form, the gravity equation is as follows: (Formula2) Where is the bilateral trade flow between countries i and j at time t, ÃŽÂ ± is the constant, is the natural logarithm of the GDP of country i, is the natural logarithm of the GDP of country j, is the natural logarithm of the distance between country i and country j, and ÃŽÂ µ is the normally distributed error. This basic gravity model is usually augmented by including other variables like adjacency, common language, colonial links, common currency, and RTA membership among others. Different authors have suggested many different specifications for the gravity model of trade  [1]  , however there is no consensus about which model specification is more accurate and serves best in assessing RTAs. Moreover other authors have suggested that the gravity model is biased due to endogeneity and reverse causality (Magee, 2003) and have led others to use entirely different methods to asses RTAs (Mayda Steinberg (2006). This paper uses a gravity model specification that is similar to Cernat (2001) but considers Cheng Walls (2003) suggestions of eliminating dummy variables that might capture unintended trade distorting variables. To assess trade creation and trade diversion in nine RTAs, Cernat(2001) adds two dummy variables to an already augmented specification of the model: Intra_RTA and Extra_RTA. The Intra_RTA dummy becomes a 1 when both, the importing and the exporting countries, are partners in the RTA being assessed by the two dummies. The Extra_RTA dummy becomes one when the importing country is part of the assessed RTA but the exporter is a third country. The model uses bilateral trade flows as a dependent variable and 18 independent variables: GDP of importing country, GDP of the exporting country, GDP per capita of the importing country, GDP per capita of the exporting country, Population of the importing country, population of the exporting country, distance between the capital cities of both countries, an adjacency dummy variable, a common language dummy variable, nine Intra_RTA dummy variables (one for each RTA assessed), and nine Extra_RTA dummy variables (one for each RTA assessed). All non-dummy variables expressed in their logarithmic form. In theory, the Intra_RTA dummies will capture the effect that the assessed RTA had on trade between partners of the RTA; and the Extra_RTA dummy captures the effect of the same RTA on trade of RTA members with third countries. To diagnose a RTA as trade crating or trade diverting, Cernat (2001) designed an Intra-Extra coefficient table (Table# in this paper). According to this table, if a trade agreement increased trade between its partners at the expense of third countries -diverted trade, the Intra_RTA dummy should be positive and the Extra_RTA dummy negative. If the agreement created trade instead, the coefficients of both dummies would be positive. Coefficient Extra_RTA Intra_RTA Sign + + Trade creation and trade expansion Trade diversion Trade expansion Trade contraction Table 1: Dummy Variable Interpretation Cheng Wall (2003) use a fixed-effect panel data analysis to measure the effect on trade of RTAs over time. Their proposed model allegedly controls the heterogeneity bias in the gravity model of trade. In it, Cheng Wall (2003) drop all dummy variables and even drop the distance variable. They argue that these variables bias the gravity model and they motivate their argument in a number of ways. First, they reason that economic distances are too hard to measure with accuracy because big countries have many economic centers, that are thousands of miles apart and that serve as trade centers for diffe Effect on Trade Flows of Regional Trade Agreements Effect on Trade Flows of Regional Trade Agreements Abstract This paper studies the effect on trade flows of RTAs signed between developing economies. It uses a variation of the gravity model of trade to asses five RTAs: Mercosur, The Andean Community, SICA, the EU, Chile-China. Contents Abstract iii List of Figures vi List of Tables vi List of Formulas vi 1. Introduction viii 1.1Background viii 1.2 Problem definition x 1.3 Research Objective x 1.3.1 Major research question x 1.3.2 Minor research question xi 1.4 Theoretical Framework xi 1.4.1 The Gravity model of trade xi 1.4.2 Research Methodology and Design xii 1.4.3 Research Assumptions xii 1.4.4 Research Limitations xii 1.5 Thesis Structure xiii 2. Literature Review xiii 2.1 Trade Creation and Trade Diversion xiv 2.1.1 Trade Creation xiv 2.1.2 Trade Diversion xvii 2.1.3 Gross Trade Creation xviii 2.2 Empirical Evidence from SS RTAs xx 3.Theoretical Framework and Research Methodology xxi 3.1 Theoretical Framework xxi 3.1.1 Multiple Regression Analysis and Model Building xxi 3.1.2 Regression Model Diagnosis xxii 3.1.3 The Gravity Model of Trade xxiii 3.1.4 Research Assumptions xxvii 3.1.5 Research Limitations xxvii 3.2 Research Methodology xxvii 3.2.1 Research Type and Approach xxvii 3.2.2 Data Collection xxx 4. Findings and Results xxxi 4.1 The effect of RTAs xxxi 5. Conclusions xxxiii 6. Appendix xxxiv 7. References xxxvii List of Figures Figure 1 Trade Creation. Figure 2 Trade Diversion Figure 3 Trade Creation Proper vrs. Gross Trade Creation Figure 4 Multiple regression hyperplane List of Tables Table 1 Dummy Variable Interpretation.. Table 2 RTAs assessed and Members Table 3 Regression results of individual years Table 4 Regression results of PCS List of Formulas Formula 1 Gravity model equation Formula 2 Log linear form of the gravity model Formula 3 Current gravity specifications.. Abbreviations CGE: Computable General Equilibrium COMESA: Common Market for Eastern and Southern Africa FTA: Free Trade Agreement GATT: General Agreement on Tariffs and Trade GDP: Gross Domestic Product MERCOSUR: Mercado ComÃÆ' ºn del Sur RTA signed between Brazil, Argentina, Uruguay and Paraguay NAFTA: North American Free Trade Agreement OLS: Ordinary Least Squares PCS: Pooled Cross-Section PTA: Preferential Trade Agreement RIA: Regional Integration Agreement RTA: Regional Trade Agreement SICA: Sistema de IntegraciÃÆ' ³n Centro Americana RTA between Honduras, Costa Rica, El Salvador, Guatemala, Nicaragua Panama and Belize SS: South-South UNCTAD: United Nations Conference on Trade and Development WB: World Bank WITS: World Integrated Trade Solution WTO: World Trade Organization 1. Introduction Background Four hundred and sixty two RTAs have been notified to the WTO up to February 2010 (WTO,2010). From 1948-1994 the GATT received one hundred and twenty four notifications of RTAs, and since its creation in 1995, the WTO has received over 300 RTA notifications, (WTO,2010). This trend of forming trading blocs is likely to become stronger as more RTAs are currently under negotiation. Of particular interest to economists, and the focus of this paper, are South-South RTAs, that is, RTAs signed between countries of low income levels. There are reasons to believe that SS RTAs may not only fail to stimulate economic growth among member countries, but also hinder growth for these countries. In their book Regional Integration and Development, Winters and Schiffer (2003) state that there is some evidence that North-South RTAs stimulate economic growth in the southern partner, little evidence that North-North RTAs stimulate growth and NO evidence that South-South RTAs do so. Specifically they argue that SS RTAs do not provide partners with access to technology or knowledge that is characteristic of rich countries; SS RTAs are unlikely to add credibility to government policies and may even hinder investment if not accompanied by liberalization of trade with the rest of the world; and, SS RTAs are likely to generate only trade diversion and no trade creation Mayda and Steinberg (2006) argue that SS RTAs are unlikely to provide the positive effects of competition and economies of scale because partner countries are both small and poor. In addition, the loss of fiscal revenues harms the member country economies and finally, SS RTAs are more likely to divert trade rather than create trade. Willmore (1976) and Nicholls (1998) make similar points using the Central American Common Market as an example. Trade creation and trade diversion are concepts that were introduced by Jacob Viner in 1950. Both terms refer to the redirection of trade flows as a consequence of an RTA. In trade creation, goods that were previously produced by a local economy are instead imported from more efficient producers in countries within the RTA. Trade diversion refers to the redirecting of trade from the more efficient producer to a less efficient producer within the RTA. In both cases, trade creation and trade diversion, the trade flows are affected by the reduction of tariffs to member countries typical of RTAs. Trade creation and trade diversion are explained with more detail in section 2.1 of this paper. A number of studies have been conducted to assess the effects of SS RTAs in partner countries -most of them attempt to determine if the RTAs were trade creating or trade diverting e.g. Evans (1998), Lewis et al. (1999), Flores (1997), Cernat (2001,2003)), Subramanian and Tamirisa (2001), Mayda and Steinberg (2006). Different methods have been used and the results are mixed. As a reference, this paper focuses on the results of Cernat (2001, 2003), Flores (1997), and Mayda and Steinberg (2006). Different methods were used in these studies and the results were mixed. Cernat (2001) used the log-linear form of the gravity equation to assess nine SS RTAs. He finds evidence that suggests that SS RTAs are less trade diverting than theoretically predicted. Cernat (2001) findings suggest that Mercosur and the Andean Community were overall, trade diverting. On the other hand Flores (1997), using a CGE analysis, concluded that Mercosur was trade creating. Mayda and Steinberg (2006) use a difference-in-difference estimation strategy at commodity level to assess the impact of COMESA on Ugandan imports. They present evidence that South-South trade agreements create positive but little economic gains, through changes in trade patterns, for their members. This is different from Cernat (2001) results, which indicate that imports into COMESA members from third countries were on average 30 per cent higher than those predicted without the trade diversion dummy variable. Mayda and Steinberg (2006) find evidence that no trade diversion takes place in COMESA. The mixed results from these studies, the increasing number of SS RTAs underway and the high number of countries wanting to join completely or in part in these RTAs poses the following questions: Why do policy makers from these countries advocate in favor of these RTAs? Should these RTAs be pursued?, and the still not categorically answered question: Are South-South Regional Trade Agreements trade creating or trade diverting? Using the gravity model, this paper aims to get evidence from SS RTAs from the Americas. 1.2 Problem definition Do South-South Regional Trade Agreements create trade or divert trade? The literature on this topic is vast and contradictory. Everybody thinks that SS-RTAs are trade diverting. Some papers present evidence of this. Other present evidence that they are actually trade creating. Finally others find evidence of very little trade creation and no significant evidence of trade diversion. With so many RTAS in place and many others underway, it is important to understand the effects of creating these trade blocs. Should poor countries pursue RTAs with poor countries? Are SS RTAs building blocks or stumbling stones towards the world liberalization of trade? 1.3 Research Objective The main objective of this paper is to determine if MERCOSUR, Andean Community, and SICA were trade creating or trade diverting in the years 1995, 1998, 1999, 2003, 2007. 1.3.1 Major research question Is there significant evidence of trade creation or trade diversion on the years 1995,1998,1999,2003,2007 for Mercosur, Andean Community and SICA? 1.3.2 Minor research question Is there significant evidence that suggests that RTA members of the above mentioned RTAs increased trade between them and their partners? Is there significant evidence that suggests that members of the above mentioned RTAs increased trade between them and third countries? Is there significant evidence that suggests that the increase in trade between RTA partners of the above mentioned RTAs is higher than the decrease in trade between RTA members and third countries? 1.4 Theoretical Framework 1.4.1 The Gravity model of trade The gravity model uses Newtonian gravity principles to study human behavior. It is widely used by economists and social scientists to predict flows of trade, people, goods, money, and other variables as an effect of changes in economic policies, fiscal policies, new laws, bans and other distortions to the flow of a given variable. The original gravity model of trade assumes that two countries will trade more or less depending on the sizes of their economies and the distance between their economic centers. It was created independently by Tinbergen (1962) and PÃÆ' ¶yhÃÆ' ¶nen (1963) and augmented in later years to include other independent variables that may cause a change in trade flows. These augmented versions of the basic gravity model may include: population of the two countries, presence of common borders, same language, common colonizer, and others that the researcher regards as relevant. The gravity model specifications used in this paper are similar to those of Cernat(2001) and Cheng Hall (2003). These specifications are used to run OLS regressions on trade data of 1995, 1998, 1998, 2003 and 2007. One set of pooled data including the years mentioned is analyzed using the same gravity specifications. The results of these regressions provide evidence of gross trade creation and diversion as specified by Balassa (1967) 1.4.2 Research Methodology and Design The paper uses standard OLS analysis, with bilateral imports as a dependent variable and 17 independent variables: GDP of the importing country, GDP of the exporting country, Population of the importing country and population of the exporting country, distance between the capital cities of each country pair, Intra_x dummy variable for each RTA, Extra_x dummy variable for each RTA. The values of GDPs, distance and populations are used in their logarithmic form. GDPs and population data was collected from the WB databank. Trade data was collected from UNCTADs database using the WB banks WITS application. 1.4.3 Research Assumptions Costs of transportation are proportional to the great circle distance between economic centers of countries studied All countries have one economic center, namely their capital cities. The error coefficient of the log-linear gravity model used in this paper is normally distributed with a mean of zero and constant variance for all observations. It is also assumed that error pairs are uncorrelated. GDPs, population, and trade data collected belongs to the population 1.4.4 Research Limitations 1.5 Thesis Structure The remainder of this paper is organized as follows: Chapter 2 presents a literature review that explains trade creation and trade diversion, the effect of both and findings of previous papers that assess RTAs. Chapter 3 explains the gravity model used on the paper, how data was collected and organized, and the considerations in analyzing data. Chapter 4 summarizes the findings and Chapter 5 concludes. 2. Literature Review There is extensive literature on RTAs. This literature either predicts the effects of a RTAs using a computable-general equilibrium analysis or they measure the effects of an FTA using aggregate data or commodity level data. The concern of most authors, and the reason why they conduct their research, is that FTAs and specially SS FTAs may divert trade rather than create it. In the former case, purchases from an efficient producing country are replaced by purchases of a less efficient FTA partner. This section serves three purposes: 1. It explains trade creation and trade diversion to the reader so she can better understand the methodology used to assess the selected RTAs. 2. It presents the reader with the results of previous findings so that the reader can compare the results of this paper with previous results of other authors. 3. It gross trade creation and diversion so that the reader can understand the results of the research. 2.1 Trade Creation and Trade Diversion Trade creation and trade diversion as defined by Viner (1950), refer to changes in flow of trade between nations. Trade creation happens when trade is switched from less efficient producers of one country to more efficient producers in another country a better allocation of resources. In trade diversion trade is shifted from more efficient producers in one country to less efficient producers in another country -a worsening in the allocation of resources. 2.1.1 Trade Creation Trade creation can be defined as the net welfare gain that results from the initiation of an RTA, both on the production and on the consumption side. Some economists though, think that it is more precise to think of trade creation only as the increase in welfare from the production side (Senior-Nello S, 2010). In this paper the former definition of welfare is considered. To understand trade creation, imagine the following scenario (Figure 1): The country in question, Country X, say Honduras, imports product Q from country M (United States) at price Pw+t, which includes an ad valorem tax and is the same price offered by other nations in the world, including country E (El Salvador). At this price, Honduras imports 20 units and consumes 60. The remaining 40 units are imported from the US. This is illustrated by the Honduran supply and demand lines in Figure 1 and the perfectly elastic supply curve with free trade of El Salvador. It is understood that a change in Honduran imports of product Q cannot affect the world price of product Q. Figure 1. Trade Creation If Honduras signed an RTA with El Salvador and the price of product Q from El Salvador dropped to PE, Honduras would now produce 10 units of product Q, consume 70, and import the difference of 60 units. Because El Salvador now offers a lower price for product Q, Honduras now imports this product from El Salvador and not from the US. The consumer surplus gains of this RTA are represented by areas a+b+c+d. The loss in producer surplus is indicated by area a. The loss of tariff revenue for Honduras is area c. Therefore the net welfare increase of this RTA between El Salvador and Honduras is indicated by triangles b and d. Triangle b represents the amount of production that was shifted from less efficient producers in Honduras to more efficient producers in El Salvador a better allocation of resources. Triangle d represents the increase in consumption of product Q. 2.1.2 Trade Diversion Trade Diversion is illustrated in figure 2. Again the supply and demand lines are those of Honduras for product Q. Line S1 and S2 are the perfectly elastic supply curves of USA and El Salvador respectively, and lines S1+t and S2+t are the tax inclusive supply curves of the same two countries. Figure 2. Trade Diversion Honduras imports product Q from the US at tax inclusive price Pw+t. El Salvador offers product Q at price PE+t and thus does not benefit from Honduran purchases. At price Pw+t Honduras produces 20 units, consumes 60, and imports 40 from the US. If Honduras and El Salvador now form an RTA and do not include the US, tariffs will be removed on imports from El Salvador but not from imports from the US. After forming the RTA Honduras would produce 10 million units, consume 80 million and import 60 million units of product Q from El Salvador at price PE. The RTA has diverted trade from more efficient producers in the US to less efficient producers in El Salvador, so there is a worsening in the allocation of resources. On the other hand 10 million units are now imported from El Salvador instead of being produced at home in Honduras. At the same time 40 million units that were previously imported from the US are now being imported from El Salvador. The welfare loss from trade diversion is reflected rectangle f. The 40 million units that were imported from more efficient producers in the US whose free trade price is $1.00 are now imported from El Salvador at $2.00. The welfare loss is $40 million. The welfare gain from the customs union is calculated as the areas of triangles b and d. Triangle b is the welfare gain in the production side: $5 million. Triangle d is the welfare gain in the consumption side: $10 million. The total impact on welfare as a result of the RTA is given by the sum of the areas of triangles b and d minus the area of rectangle f (b+d-f): welfare gain minus welfare loss. In this case the RTA generated a welfare loss of $25 million. Figure 2 illustrates that the idea of trade creation and trade diversion can be misleading. If, for example, the sum of areas of triangles b and d would be greater than the area of rectangle f, the RTA would cause a net welfare gain. In this scenario, although trade has been diverted from more efficient producers in one country to less efficient producers in another, the RTA increased welfare for the RTA signing country. 2.1.3 Gross Trade Creation Following the lead of Jacob Viner, Balassa (1967) evaluated the effects of the European Common Market with reference to its trade creating and trade diverting effect using Tinbergen (1962) and PÃÆ' ¶yhÃÆ' ¶nen (1963) model -the gravity model. In his work he developed model that captured substitution of less efficient domestic and foreign suppliers for more efficient foreign suppliers gross trade creation; which is different than Viners definition of trade creation according to which trade is created only at the expense of local producers. To illustrate the difference gross trade creation and trade creation proper as defined by Viner (1950), consider three trading partners of one particular product countries A, B, and C, product Q (See Figure 3). Before signing a RTA with country B, Country A imports product Q from both, Country B and Country C in equal amounts and has 4 local producers of the same product (Figure 3a). In the case of trade creation proper (Figure 3b), after signing a RTA with country B, Country A continues to import equal amounts of product Q from countries B and C but has reduced the number of local producers of the same product. More efficient producers in Country B have absorbed market share from local producers in Country A trade creation proper. Gross trade creation on the other hand (Figure 3c), considers that trade is created not only when local producers are substituted, but also when producers in third countries are substituted. In this case, after signing a RTA with country B, Country A decreases its imports of product Q from Country C and increases imports of the same product from Country B while keeping the same number of local producers. It is important to note that gross trade creation assumes that substituted producers in Country C were less efficient than producers in country B; the contrary would constitute trade diversion. Figure 3. Trade Creation Proper vrs Gross Trade Creation Like in Cernat (2001), this paper evaluates the gross trade creating effects of the assessed RTAs. In his paper, Balassa (1967) provides evidence of trade creation in the European Common Market during six years since the Markets establishment. Again, trade creation applies to the substitution of any less efficient producer for a more efficient one, independent of the producers base country. The why of the expected differences between the results of developed country RTAs and SS RTAs is explained in the next section. 2.2 Empirical Evidence from SS RTAs A number of studies have been conducted to assess the effects of SS RTAs in partner countries -most of them attempt to determine if the RTAs were trade creating or trade diverting e.g. Evans (1998), Lewis et al. (1999), Flores (1997), Cernat (2001), Subramanian and Tamirisa (2001), Cernat (2003), Mayda and Steinberg (2006). Different methods have been used and the results are mixed. This paper uses methods similar to Cernat (2001) and Cheng Wall (2003). In his paper, Cernat(2001) used the log-linear form of the gravity equation to asses nine SS RTAs. He finds evidence that suggests that SS RTAs are less trade diverting than theoretically predicted. Cernats(2001) findings suggest that Mercosur and the Andean Community were overall, trade diverting. Mayda and Steinberg(2006) use a difference-in-difference estimation strategy at commodity level to assess the impact of COMESA on Ugandan imports. They present evidence that South-South trade agreements create positive but little economic gains, through changes in trade patterns, for their members (Mayda and Steinberg, 2003). This is different from Cernats(2001) results, which indicate that imports into COMESA members from third countries were on average 30 per cent higher than those predicted without the trade diversion dummy variable. Mayda and Steinberg (2006) find evidence that no trade diversion takes place in COMESA. The mixed results from these studies, the increasing number of SS RTAs underway and the high number of countries wanting to join completely or in part in these RTAs poses the following questions: Why do policy makers from these countries advocate in favor of these RTAs? Should these RTAs be pursued?, and the still not categorically answered question: Are South-South Regional Trade Agreements trade creating or trade diverting? Using the gravity model, this paper aims to get evidence from SS RTAs from the Americas. Theoretical Framework and Research Methodology ***Intro*** Problem Definition Research Objective Research Questions 3.1 Theoretical Framework 3.1.1 Multiple Regression Analysis and Model Building Figure 4. Regression Hyperplane Multiple regression analysis is a method of inferential statistics that measures the relationship between two or more independent variables and one dependent variable. The multiple regression model is given by: Where: y = dependent variable = regression constant of the population = regression coefficient for each variable xj=1,2,k k = number of independent variables = error of the model Different from a simple regression equation -which forms a straight line in a two-dimensional space to represent the linear relationship between two variables the multiple regression model forms a hyperplane in a multidimensional space (Figure 4). This hyperplane represents the relationship between the dependent variable and k independent variables. To build a multiple regression model, that is, to construct a mathematical equation that represents the relationship between independent and dependent variables, a researcher must decide: The question that needs to be answered The potential independent variables What is a representative sample of the population should be at least four times the number of independent variables (Groebner, et al, 2008) The model used in this paper is well known and widely used by social scientists to measure the flow of various types of variables. This model is explained in section 3.1.3. 3.1.2 Regression Model Diagnosis To ensure the significance of an OLS regression analysis results, the following evaluation criteria are usually used (Groebner, et al, 2008): The coefficient of determination (R2 and R2 adjusted) Significance of the overall model (F-test) Significance of individual variables (t-tests) Size of the standard deviation of the model Multicollinearity of variables The coefficient of determination measures the proportion of variation in the dependent variable that can be explained with the independent variables used by the model. The value of R2 may range from 0-1, with 1 representing a perfect linear relationship between dependent and independent variables. Higher values of R2 are preferred as they would indicate that the chosen independent variables explain better the variations in the dependent variables. A derivate indicator, called adjusted R2, takes into account the number of independent variables in the model, and their contribution the variations in the dependent variable. Because R2 increases when independent variables are added to the model, even if the new variables have no relationship with the dependent variable, adjusted R2 evaluates the model more precisely. The Significance of the overall model can be determined by comparing the Significance F value given in the regression output of a statistical software application, and the critical value for a given alpha level. The critical value for a given alpha level is determined using t-tables and statistical procedures explained in Groebner (2008). The Significance of individual variables is determined by comparing their calculated t-values with the critical t-value of the model. If their calculated t-values are greater than their critical t-values the variable is considered significant. To determine the critical t-values of independent variables, degrees of freedom need to be calculated and interpolated with the desired level of significance in a t-table. For detailed explanations see Groebner (2008). The size of the standard deviation of the model measures the dispersion of observed values of the dependent variable, and the predicted values for the same variable. It is up to the researcher to determine an acceptable range for the standard error estimation. Multicollinearity occurs when two variables provide overlapping information to explain the variation in the dependent variable. To measure multicollinearity the researcher can use the VIF as an indicator. Generally, if the VIF 3.1.3 The Gravity Model of Trade Following Isaac Newtons principle of gravity, according to which two bodies will attract each other more when their sizes are increased and the distance between them is shortened; the gravity model explains trade flow between two countries based on the size of their economies and the distance between their economic centers. The equation representation of the gravity model of trade is: (Formula 1) Where Fg represents trade flow, G is the constant, m1 and m2 are the economic dimensions of the two countries in question, and d is the distance between the two countries. In its basic log-linear form, the gravity equation is as follows: (Formula2) Where is the bilateral trade flow between countries i and j at time t, ÃŽÂ ± is the constant, is the natural logarithm of the GDP of country i, is the natural logarithm of the GDP of country j, is the natural logarithm of the distance between country i and country j, and ÃŽÂ µ is the normally distributed error. This basic gravity model is usually augmented by including other variables like adjacency, common language, colonial links, common currency, and RTA membership among others. Different authors have suggested many different specifications for the gravity model of trade  [1]  , however there is no consensus about which model specification is more accurate and serves best in assessing RTAs. Moreover other authors have suggested that the gravity model is biased due to endogeneity and reverse causality (Magee, 2003) and have led others to use entirely different methods to asses RTAs (Mayda Steinberg (2006). This paper uses a gravity model specification that is similar to Cernat (2001) but considers Cheng Walls (2003) suggestions of eliminating dummy variables that might capture unintended trade distorting variables. To assess trade creation and trade diversion in nine RTAs, Cernat(2001) adds two dummy variables to an already augmented specification of the model: Intra_RTA and Extra_RTA. The Intra_RTA dummy becomes a 1 when both, the importing and the exporting countries, are partners in the RTA being assessed by the two dummies. The Extra_RTA dummy becomes one when the importing country is part of the assessed RTA but the exporter is a third country. The model uses bilateral trade flows as a dependent variable and 18 independent variables: GDP of importing country, GDP of the exporting country, GDP per capita of the importing country, GDP per capita of the exporting country, Population of the importing country, population of the exporting country, distance between the capital cities of both countries, an adjacency dummy variable, a common language dummy variable, nine Intra_RTA dummy variables (one for each RTA assessed), and nine Extra_RTA dummy variables (one for each RTA assessed). All non-dummy variables expressed in their logarithmic form. In theory, the Intra_RTA dummies will capture the effect that the assessed RTA had on trade between partners of the RTA; and the Extra_RTA dummy captures the effect of the same RTA on trade of RTA members with third countries. To diagnose a RTA as trade crating or trade diverting, Cernat (2001) designed an Intra-Extra coefficient table (Table# in this paper). According to this table, if a trade agreement increased trade between its partners at the expense of third countries -diverted trade, the Intra_RTA dummy should be positive and the Extra_RTA dummy negative. If the agreement created trade instead, the coefficients of both dummies would be positive. Coefficient Extra_RTA Intra_RTA Sign + + Trade creation and trade expansion Trade diversion Trade expansion Trade contraction Table 1: Dummy Variable Interpretation Cheng Wall (2003) use a fixed-effect panel data analysis to measure the effect on trade of RTAs over time. Their proposed model allegedly controls the heterogeneity bias in the gravity model of trade. In it, Cheng Wall (2003) drop all dummy variables and even drop the distance variable. They argue that these variables bias the gravity model and they motivate their argument in a number of ways. First, they reason that economic distances are too hard to measure with accuracy because big countries have many economic centers, that are thousands of miles apart and that serve as trade centers for diffe