The paper shows how - using as an example the trade flows between eleven European countries and 31 OECD `reporting' countries - the result of a gravity model, in terms of potential trade, changes substantially when country heterogeneity and dynamics are taken into account. Comparing the...

Do pro-trade effects of free trade agreements reflect timing of policy or dynamic trade adjustment? Only the latter involves dynamic welfare gains. I find that dynamic trade adjustment is as important as the immediate impact effect of free trade agreements.