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Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism

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Author Info

  • Scott L. Baier
  • Jeffrey H. Bergstrand
  • Peter Egger
  • Patrick A. McLaughlin

Abstract

This paper argues that the 'competitive liberalisation' of national governments of the past several decades has created a 'market' for regional economic integration agreements (EIAs). Evidence shows that countries that have selected into EIAs - such as free trade agreements - have 'chosen well' in the sense that the same economic characteristics that explain and predict bilateral EIAs also explain and predict bilateral trade flows. We show that previous ex post empirical evaluations of the effects of EIAs on trade have tended to underestimate the effects due to ignoring the (endogenous) self-selection bias of country pairs into EIAs. Accounting for this bias, we find that European economic integration had a much larger impact on trade over the period 1960-2000 than previously found, and other more recent EIAs have had economically and statistically significant effects on members' trade. The results shed further light on understanding the causes and consequences of the growth of regionalism. Copyright 2008 The Authors.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 31 (2008)
Issue (Month): 4 (04)
Pages: 461-497

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Handle: RePEc:bla:worlde:v:31:y:2008:i:4:p:461-497

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References

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  1. Mansfield, Edward D. & Reinhardt, Eric, 2003. "Multilateral Determinants of Regionalism: The Effects of GATT/WTO on the Formation of Preferential Trading Arrangements," International Organization, Cambridge University Press, vol. 57(04), pages 829-862, September.
  2. Ben Zissimos, 2010. "Why are Trade Agreements Regional?," Vanderbilt University Department of Economics Working Papers 1002, Vanderbilt University Department of Economics.
  3. Peter Egger, 2002. "An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials," The World Economy, Wiley Blackwell, vol. 25(2), pages 297-312, 02.
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  6. I-Hui Cheng & Howard J. Wall, 2004. "Controlling for heterogeneity in gravity models of trade and integration," Working Papers 1999-010, Federal Reserve Bank of St. Louis.
  7. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
  8. Peter Egger, . "A Note on the Proper Econometric Specification of the Gravity Equation," WIFO Working Papers 108, WIFO.
  9. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
  10. Michael Tomz & Judith L. Goldstein & Douglas Rivers, 2007. "Do We Really Know That the WTO Increases Trade? Comment," American Economic Review, American Economic Association, vol. 97(5), pages 2005-2018, December.
  11. Emanuel Ornelas, 2005. "Rent Destruction and the Political Viability of Free Trade Agreements," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1475-1506, November.
  12. John Whalley, 2008. "Recent Regional Agreements: Why So Many, Why So Much Variance in Form, Why Coming So Fast, and Where Are They Headed?," The World Economy, Wiley Blackwell, vol. 31(4), pages 517-532, 04.
  13. Céline CARRERE, 2003. "Revisiting the Effects of Regional Trading Agreements on trade flows with Proper Specification of the Gravity Model," Working Papers 200310, CERDI.
  14. Dean A. DeRosa & John P. Gilbert, 2005. "Predicting Trade Expansion under FTAs and Multilateral Agreements," Working Paper Series WP05-13, Peterson Institute for International Economics.
  15. 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.
  16. C. Fred Bergsten, 1996. "Competitive Liberalization and Global Free Trade: A Vision for the Early 21st Century," Working Paper Series WP96-15, Peterson Institute for International Economics.
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Citations

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Cited by:
  1. Amélie Guillin, 2012. "The impacts of Regional Trade Agreements in force in Europe on trade in services," Economics Bulletin, AccessEcon, vol. 32(1), pages 685-697.
  2. Sylvanus Kwaku Afesorgbor, 2013. "Revisiting the Effectiveness of African Economic Integration. A Meta-Analytic Review and Comparative Estimation Methods," Economics Working Papers 2013-13, School of Economics and Management, University of Aarhus.
  3. Anselm Mattes & Philipp Meinen & Ferdinand Pavel, 2012. "Goods Follow Bytes: The Impact of ICT on EU Trade," Discussion Papers of DIW Berlin 1182, DIW Berlin, German Institute for Economic Research.
  4. Andr� Sapir, 2011. "European Integration at the Crossroads: A Review Essay on the 50th Anniversary of Bela Balassa's Theory of Economic Integration," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1200-1229, December.
  5. Koopmann, Georg & Vogel, Lars, 2011. "Globalisierung, Regionalisierung und die Handelspolitik der Europäischen Union," HWWI Policy Papers 58, Hamburg Institute of International Economics (HWWI).
  6. Faisal Ahmed, 2010. "From Resource to Trade Diplomacy – Revealing the Hierarchical Nature of Geopolitics," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 13(35), pages 3-34, (1).
  7. Foster, Neil & Poeschl, Johannes & Stehrer, Robert, 2011. "The impact of Preferential Trade Agreements on the margins of international trade," Economic Systems, Elsevier, vol. 35(1), pages 84-97, March.
  8. Bianka Dettmer, 2012. "The European Union's service directive: Contrasting ex ante estimates with empirical evidence," Jena Economic Research Papers 2012-019, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  9. Grant, Jason H. & Vollrath, Thomas L., 2010. "The New Wave Of Regionalism: Does Outsider/Insider Status Affect The Competitiveness Of U.S. Agricultural Exports?," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61144, Agricultural and Applied Economics Association.
  10. Baier, Scott L. & Bergstrand, Jeffrey H., 2009. "Estimating the effects of free trade agreements on international trade flows using matching econometrics," Journal of International Economics, Elsevier, vol. 77(1), pages 63-76, February.
  11. Stefan Borsky & Andrea Leiter & Michael Pfaffermayr, 2011. "Does going green pay off? The effect of an international environmental agreement on tropical timber trade," Working Papers 2011-17, Faculty of Economics and Statistics, University of Innsbruck.
  12. Neil Foster & Robert Stehrer, 2011. "Preferential trade agreements and the structure of international trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(3), pages 385-409, September.
  13. Neil Foster, 2012. "Preferential Trade Agreements and the Margins of Imports," Open Economies Review, Springer, vol. 23(5), pages 869-889, November.
  14. Tayebeh Farahani & Reza Parvardeh, 2012. "The Impact of ICT on Trade in Persian Gulf Countries," Iranian Economic Review, Economics faculty of Tehran university, vol. 17(2), pages 63-73, spring.
  15. Vollrath, Thomas L. & Hallahan, Charles B., 2011. "Reciprocal Trade Agreements: Impacts on Bilateral Trade Expansion and Contraction in the World Agricultural Marketplace," Economic Research Report 102755, United States Department of Agriculture, Economic Research Service.
  16. Grant, Jason H., 2010. "The Latest Wave of Regionalism: Does Outsider Status Affect the Competitiveness of U.S. and Canadian Agricultural Exports?," Working Papers 90888, Canadian Agricultural Trade Policy Research Network.
  17. Vollrath, Thomas L. & Grant, Jason H. & Hallahan, Charles B., 2012. "Reciprocal Trade Agreements: Impacts on U.S. and Foreign Suppliers in Commodity and Manufactured Food Markets," Economic Research Report 131618, United States Department of Agriculture, Economic Research Service.

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