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The Trade and Investment Effects of Preferential Trading Arrangements

In: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14

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  • Philippa Dee
  • Jyothi Gali

Abstract

This study quantifies the impact of traditional and new age' provisions of preferential trading arrangements (PTAs) on merchandise trade and investment. It does so by estimating gravity models of bilateral trade and investment. It finds that recent and some past PTAs are not as benign as some contemporary empirical assessments have suggested. A careful consideration of the analytical issues including controlling comprehensively for other observable and unobservable factors, and testing explicitly for whether the trade and investment effects are significantly different after PTA formation than before accounts for less favourable finding in this study. It is also possible for PTAs to have adverse effects on investment flows. If investment responds in beachhead' fashion to the trade provisions of PTAs, the trade carried out from those beachheads could constitute traditional trade diversion. However, the paper finds little evidence of beachhead investment. Instead, it finds evidence of net investment creation in response to the new age', non-trade provisions of PTAs. Thus the finding on investment is more positive than for trade, but not without qualifications, since trade diversion is still possible from the new investment positions.

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This chapter was published in:

  • Takatoshi Ito & Andrew K. Rose, 2005. "International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14," NBER Books, National Bureau of Economic Research, Inc, number ito_05-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0193.

    Handle: RePEc:nbr:nberch:0193

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    References

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    1. Ethier, Wilfred J., 2001. "The new regionalism in the Americas: a theoretical framework," The North American Journal of Economics and Finance, Elsevier, vol. 12(2), pages 159-172, July.
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    Cited by:
    1. Jong-Wha Lee & Innwon Park & Kwanho Shin, 2008. "Proliferating Regional Trade Arrangements: Why and Whither?," The World Economy, Wiley Blackwell, vol. 31(12), pages 1525-1557, December.
    2. World Bank, 2012. "Reshaping Economic Geography of East Africa : From Regional to Global Integration, Volume 2. Technical Annexes," World Bank Other Operational Studies 11916, The World Bank.
    3. Souleymane COULIBALY, 2006. "Evaluating the Trade and Welfare Effects of Developing RTAs," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 06.03, Université de Lausanne, Faculté des HEC, DEEP.
    4. Manchin, Miriam & Pelkmans-Balaoing, Annette O., 2008. "Clothes without an Emperor: Analysis of the preferential tariffs in ASEAN," Journal of Asian Economics, Elsevier, vol. 19(3), pages 213-223, June.
    5. Medvedev, Denis, 2006. "Preferential trade agreements and their role in world trade," Policy Research Working Paper Series 4038, The World Bank.
    6. Medvedev, Denis, 2006. "Beyond trade : the impact of preferential trade agreements on foreign direct investment inflows," Policy Research Working Paper Series 4065, The World Bank.
    7. Antoni Estevadeordal & Matthew Shearer & Kati Suominen, 2009. "Market Access Provisions in Regional Trade Agreement," IDB Publications 9311, Inter-American Development Bank.
    8. Jose R. Lopez-Calix & Peter Walkenhorst & Ndiame Diop, 2010. "Trade Competitiveness of the Middle East and North Africa : Policies for Export Diversification," World Bank Publications, The World Bank, number 2466, January.
    9. Peter Drysdale & Xinpeng Xu, 2004. "Taiwan's Role in the Economic Architecture of East Asia and the Pacific," Asia Pacific Economic Papers 343, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    10. Kirkpatrick, Colin & Raihan, Selim & Bleser, Adam & Prud'homme, Dan & Mayrand, Karel & Morin, Jean Frederic & Pollitt, Hector & Hinojosa, Leonith & Williams, Michael, 2011. "Trade sustainability impact assessment (SIA) on the comprehensive economic and trade agreement (CETA) between the EU and Canada: Final report," MPRA Paper 28812, University Library of Munich, Germany.
    11. Richard Pomfret & Uwe Kaufmann & Christopher Findlay, 2010. "Are Preferential Tariffs Utilized? Evidence from Australian Imports, 2000-9," School of Economics Working Papers 2010-13, University of Adelaide, School of Economics.
    12. Jim Rose & Wayne Stevens, 2004. "Global Connectedness and Bilateral Economic Linkages - Which Countries?," Treasury Working Paper Series 04/09, New Zealand Treasury.
    13. Gil-Pareja, Salvador & Llorca-Vivero, Rafael & Martínez-Serrano, José Antonio, 2008. "Trade effects of monetary agreements: Evidence for OECD countries," European Economic Review, Elsevier, vol. 52(4), pages 733-755, May.
    14. Patrizia Tumbarello, 2007. "Are Regional Trade Agreements in Asia Stumbling or Building Blocks? Some Implications for the Mekong-3 Countries," IMF Working Papers 07/53, International Monetary Fund.
    15. Innwon Park & Soonchan Park, 2008. "Reform Creating Regional Trade Agreements And Foreign Direct Investment: Applications For East Asia," Pacific Economic Review, Wiley Blackwell, vol. 13(5), pages 550-566, December.

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