Regional Trade Agreement Impact

April 11, 2021

Linneman H (1966) An econometric study on international trade flows. Holland-Septentrionale, Amsterdam Mordonu, A. (2006). Measure of trade reorientation – the case of Russian exports in the context of EU enlargement. Working papers of the Faculty of Economics and Business Management, University of Gent, Belgium 06/394, University of Gant, Faculty of Economics and Business Management Roy J (2010) Do members of the customs union do more bilateral trade than members of free trade agreements? Rev Int Econ 18 (4): 663-681 Another way to assess the crucial role of ATRs in reducing growth volatility is to determine whether the most shock-sensitive countries are opting instead for RTA membership. There is extensive literature on why a country might want to sign an RTA (Whalley 1998, Baier and Bergstrand 2004), but these studies overlook the role of volatility. To fill this gap, we are building on Baier and Bergstrand (2004) to estimate the probability of joining an RTA. The results show that countries vulnerable to growth shocks tend to join an ATR in later periods, and it is interesting to note that the likelihood of joining a ATR decreases, with the relative strength of the volatility of growth of future regional trading partners relative to other countries. Table 3 of the Appendix provides an overview of all the trade issues addressed in this study. Baier SL, Bergstrand JH (2009) Estimated the impact of free trade agreements on international trade flows using an appropriate economy. J Int Econ 77:63-76 Aitken ND (1973) The impact of the EEC and EFTA on European trade: a cross-sectional analysis over time.

See Econ Rev 63 (5):881-892 [1] See Kpodar and Imam (2016) for details of the empirical model and the definition and sources of variables. We control the level of development, open trade, internal and external shocks and financial instability. RTA is the generic name that refers to five types of trade agreements: preferential trade agreements (EPAs), free trade agreements (FTA), customs union (CUs), common markets and economic unions. The impact of regional trade agreements on growth volatility On the other hand, ATRs also have specificities that could in turn reduce the volatility of growth. First, domestic companies with ARR have access to a larger market and could therefore face the demand for new products that could increase their production base. Second, better political coordination within an ATR – the prevalence of a formal international agreement ensures that the external enforcement mechanism set up by an ATR to overcome domestic political pressure – also promotes the implementation of sound macroeconomic policies that lead to more stable growth.


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