The paper by Scott L. Baier and Jeffrey H. Bergstrand examines whether free trade agreements (FTAs) actually increase members' international trade. Using a gravity equation and various econometric techniques, including instrumental-variable (IV), control-function (CF), and panel-data methods, the authors address the endogeneity of FTAs. They find that the effect of FTAs on trade flows is significantly underestimated, with the effect being quintupled when accounting for endogeneity. The study suggests that the standard cross-section gravity equation may be biased due to unobserved heterogeneity, and recommends using a theoretically-motivated gravity equation with differenced panel data to more accurately estimate the effects of FTAs on bilateral trade flows. The results highlight the importance of considering the endogeneity of FTAs in empirical analyses of international trade.The paper by Scott L. Baier and Jeffrey H. Bergstrand examines whether free trade agreements (FTAs) actually increase members' international trade. Using a gravity equation and various econometric techniques, including instrumental-variable (IV), control-function (CF), and panel-data methods, the authors address the endogeneity of FTAs. They find that the effect of FTAs on trade flows is significantly underestimated, with the effect being quintupled when accounting for endogeneity. The study suggests that the standard cross-section gravity equation may be biased due to unobserved heterogeneity, and recommends using a theoretically-motivated gravity equation with differenced panel data to more accurately estimate the effects of FTAs on bilateral trade flows. The results highlight the importance of considering the endogeneity of FTAs in empirical analyses of international trade.