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Regionalism in the Nineties: What Effect on Trade?

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  • Soloaga, Isidro
  • Winters, L. Alan

Abstract

The paper applies a gravity model to 1980-1996 annual non-fuel imports data for 58 countries to quantify the effects of recently created or revamped PTAs on trade. We modify the usual gravity equation to identify separate effects of PTAs on intra-bloc trade, members' total imports and their total exports. We also innovate by formally testing the significance of changes in the estimated coefficients before and after blocs' formation. Our estimations show no indication that the 'new wave' of regionalism boosted intra-bloc trade significantly. Regarding trade diversion, we found convincing evidence of it only for EU and EFTA (and for the same blocs also, we observed exports diversion, which would be consistent with their imposing a welfare cost on the ROW). Trade liberalization efforts in Latin America had a positive impact on bloc members' imports (ANDEAN, CACM, LAIA and MERCOSUR), although MERCOSUR's exports decreased in the last part of the sample.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2183.

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Date of creation: Jun 1999
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Handle: RePEc:cpr:ceprdp:2183

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Keywords: European Integration; Gravity Model; Regional Integration; Trade Diversion;

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References

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  1. Sapir, André, 1997. "The Political Economy of EC Regionalism," CEPR Discussion Papers 1739, C.E.P.R. Discussion Papers.
  2. Foroutan, Faezeh, 1998. "Does membership in a regional preferential trade arrangement make a country more or less protectionist?," Policy Research Working Paper Series 1898, The World Bank.
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  4. Wang, Z.K. & Winters, L.A., 1992. "The Trading Potential of Eastern Europe," Discussion Papers 92-21, Department of Economics, University of Birmingham.
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  8. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72, July.
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  14. James E. Anderson & Douglas Marcouiller, 1999. "Trade, Insecurity, and Home Bias: An Empirical Investigation," NBER Working Papers 7000, National Bureau of Economic Research, Inc.
  15. Winters, L. Alan & Chang, Won, 2000. "Regional integration and import prices: an empirical investigation," Journal of International Economics, Elsevier, vol. 51(2), pages 363-377, August.
  16. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
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  23. Jacques J. Polak, 1996. "Is APEC a Natural Regional Trading Bloc? A Critique of the ‘Gravity Model’of International Trade," The World Economy, Wiley Blackwell, vol. 19(5), pages 533-543, 09.
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