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Do Customs Union Members Engage in More Bilateral Trade than Free-Trade Agreement Members?

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  • Jayjit Roy

Abstract

This paper provides the first empirical analysis directly comparing the effects of customs unions (CUs) and free-trade agreements (FTAs) on members' bilateral trade, while addressing the biases arising from log-linearization of the gravity model and crucial time-invariant unobservables. Since Fiorentino et al. (2007 ) question the popularity of CUs relative to FTAs, considering the latter to be more practical in the current trading climate, such a comparison seems especially relevant. While Baier and Bergstrand (2007 ) find an FTA to approximately double members' bilateral trade after 10 years, the results of this paper find CUs to have had a much larger impact than FTAs. Copyright � 2010 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 18 (2010)
Issue (Month): 4 (09)
Pages: 663-681

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Handle: RePEc:bla:reviec:v:18:y:2010:i:4:p:663-681

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References

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  1. Daniel J. Henderson & Daniel L. Millimet, 2008. "Is gravity linear?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 137-172.
  2. A. Clausing , Kimberly, 2000. "Customs Unions and Free Trade Areas," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 418-435.
  3. Scott L. Baier & Jeffrey H. Bergstrand, 2005. "Do free trade agreements actually increase members’ international trade?," Working Paper 2005-03, Federal Reserve Bank of Atlanta.
  4. Ghosh, Sucharita & Yamarik, Steven, 2004. "Are regional trading arrangements trade creating?: An application of extreme bounds analysis," Journal of International Economics, Elsevier, vol. 63(2), pages 369-395, July.
  5. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers dp0701, Centre for Economic Performance, LSE.
  6. Anne O. Krueger, 1995. "Free Trade Agreements versus Customs Unions," NBER Working Papers 5084, National Bureau of Economic Research, Inc.
  7. Anne O. Krueger, 1999. "Are Preferential Trading Arrangements Trade-Liberalizing or Protectionist?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 105-124, Fall.
  8. Magee Christopher S, 2003. "Endogenous Preferential Trade Agreements: An Empirical Analysis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-19, December.
  9. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  10. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Ketenci, Natalya, 2014. "The Effect of the European Union Customs Union on the Balance of Trade in Turkey," MPRA Paper 54662, University Library of Munich, Germany.
  2. Mahmut Yasar & David Lisner & Roderick Rejesus, 2012. "Bilateral trade impacts of temporary foreign visitor policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(3), pages 501-521, September.
  3. Grant, Jason H., 2012. "Is the Growth of Regionalism as Significant as the Headlines Suggest? Lessons from Agricultural Trade," Working Papers 142374, Canadian Agricultural Trade Policy Research Network.
  4. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
  5. Appelbaum, Elie & Melatos, Mark, 2012. "Camouflaged Trade Agreements," Working Papers 2012-11, University of Sydney, School of Economics.
  6. Hayakawa, Kazunobu & Kimura, Fukunari, 2014. "How do free trade agreements reduce tariff rates and non-tariff barriers?," IDE Discussion Papers 446, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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