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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. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  2. 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.
  3. 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.
  4. Krueger, Anne O., 1997. "Free trade agreements versus customs unions," Journal of Development Economics, Elsevier, vol. 54(1), pages 169-187, October.
  5. Santos Silva, Joao & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  6. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
  7. Daniel J. Henderson & Daniel L. Millimet, 2008. "Is gravity linear?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 137-172.
  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. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
  10. 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.
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Cited by:
  1. 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).
  2. 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.
  3. Appelbaum, Elie & Melatos, Mark, 2012. "Camouflaged Trade Agreements," Working Papers 2012-11, University of Sydney, School of Economics.
  4. 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.
  5. 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.
  6. Jayjit Roy, 2009. "On the Robustness of the Trade-Inducing Effects of Trade Agreements and Currency Unions," Departmental Working Papers 0906, Southern Methodist University, Department of Economics.
  7. 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.

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