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Proliferating Regional Trade Arrangements: Why and Whither?

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Author Info
Jong-Wha Lee
Innwon Park
Kwanho Shin

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Abstract

This paper investigates why regional trade arrangements (RTAs) are proliferating extensively and how the effects of multiple RTAs, by interacting with each other, evolve over time. Our empirical analysis, based on an extended gravity model utilising a large panel dataset of 175 countries from 1948 to 1999, shows that RTAs on average increase global trade by raising intra-bloc trade without damaging extra-bloc trade. The net trade effects, however, heavily depend on the types of RTA strategic evolution over time, which we categorise as 'expansionary' RTAs, 'duplicate' RTAs or 'overlapping' RTAs. We find that countries excluded from an RTA can benefit more from duplicating a separate RTA than from joining an existing RTA. This result explains why the number of bilateral trade blocs, rather than the membership size of existing RTAs, is currently exploding. We also find that the net trade-creating effects of RTAs are substantially lower for countries participating in overlapping RTAs. This result suggests that it is less likely that the currently proliferating RTAs will completely merge and lead the world economy to global free trade. Our empirical results are robust to controlling for the characteristics of countries that may influence the impact of RTAs. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1467-9701.2008.01143.x
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Publisher Info
Article provided by Blackwell Publishing in its journal World Economy.

Volume (Year): 31 (2008)
Issue (Month): 12 (December)
Pages: 1525-1557
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Handle: RePEc:bla:worlde:v:31:y:2008:i:12:p:1525-1557

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Park, Innwon, 2008. "Regional Trade Agreements in East Asia: Will They Be Sustainable?," MPRA Paper 5068, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Park, Innwon & Park, Soonchan, 2008. "Free Trade Agreements versus Customs Unions: An Examination of East Asia," MPRA Paper 11301, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  3. Lee, Jong-Wha & Shin, Kwanho, 2005. "Does Regionalism Lead to More Global Trade Integration in East Asia?," MPRA Paper 706, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Cardamone, Paola, 2007. "A survey of the assessments of the effectiveness of Preferential Trade Agreements using gravity models," Working Papers 7282, TRADEAG - Agricultural Trade Agreements. [Downloadable!]
    Other versions:
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