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A Test of Endogenous Trade Bloc Formation Theory on EU Data

Author

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  • Baldwin, Richard Edward

    (Graduate Institute of International Studies)

  • Rieder , Roland

    (SBB Cargo and German Daimler AG)

Abstract

This paper empirically confronts one explanation of spreading regionalism with the European experience. The domino theory asserts that forming a preferential trade area, or deepening an existing one, produces trade diversion that generates new political-economy forces in third nations as third-nation exporters seek to redress the new discrimination and profit from newly deepened preferences. The pressure increases with the bloc's size, yet bloc size depends upon how many nations join, so a single incidence of regionalism may trigger several rounds of membership requests from nations that were previously happy to stay out. We estimate a time-series of EU trade creation and diversion over the last five decades and use these to estimate a model of EU membership demands. The results provide broad support for the model and show that trade diversion has a more powerful impact on membership than trade creation.

Suggested Citation

  • Baldwin, Richard Edward & Rieder , Roland, 2007. "A Test of Endogenous Trade Bloc Formation Theory on EU Data," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 11(2), pages 77-110, December.
    • Handle: RePEc:ris:eaerev:0145
    DOI: 10.11644/KIEP.JEAI.2007.11.2.171
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    References listed on IDEAS

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    Cited by:

    1. Bas Straathof & Gert Jan Linders & Arjan Lejour & Jan Möhlmann, 2008. "The internal market and the Dutch economy: implications for trade and economic growth," CPB Document 168, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Baldwin, Richard & Jaimovich, Dany, 2012. "Are Free Trade Agreements contagious?," Journal of International Economics, Elsevier, vol. 88(1), pages 1-16.
    3. André 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.
    4. Feuerstein Switgard, 2013. "From the Zollverein to the Economics of Regionalism," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(3), pages 367-388, June.
    5. Baldwin, Richard, 2010. "Sequencing regionalism: Theory, European practice, and lessons for Asia," CEPR Discussion Papers 7852, C.E.P.R. Discussion Papers.
    6. Koumtingué, Nelnan, 2010. "Proliferation of preferential trade agreements: an empirical analysis," MPRA Paper 68917, University Library of Munich, Germany, revised 08 Aug 2014.
    7. Hiroshi Daisaka & Taiji Furusawa, 2014. "Dynamic Free Trade Networks: Some Numerical Results," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 469-487, August.
    8. Baier, Scott L; Bergstrand, Jeffery H; Mariutto, Roland., 2010. "The Growth of Bilateralism," CAGE Online Working Paper Series 12, Competitive Advantage in the Global Economy (CAGE).

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    More about this item

    Keywords

    Domino Theory; Regionalism; FTAs;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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