Trade Potential in SAFTA - An Application of Augmented Gravity Model
AbstractThe present paper investigates the trade creation and trade diversion effects of a number of RTAs, with special focus on the SAFTA, by using a gravity model. Apart from the traditional gravity variables, the model is augmented by some other import variables (e.g. bilateral exchange rate, bilateral free trade agreement). To capture the individual country effect, along with the impact of overall RTA, a set of additional dummy variable has been introduced. The model developed in this paper is estimated by using panel data approach with country-pair specific as well as year specific fixed effects. Two stages estimation technique is deployed to arrive at the estimates. The first stage is estimated using Tobit Model, while OLS is applied in the second stage. The study finds significant intra-bloc export creation in SAPTA; however, at the same time there is evidence of net export diversion in the SAPTA. Bangladesh, India and Pakistan are expected to gain from joining the RTA, while Nepal, Maldives and Sri Lanka are likely to be negatively affected. Among the other RTAs covered under the present study, AFTA, NAFTA, SADC, MERCOSUR, CAN, EAC are associated with intra-bloc export creation and net export diversion. EU and Bangkok agreement (APTA) are found to be intra-bloc export diverting and net export diverting. BIMSTEC is found to be intra-bloc export diverting but there is no evidence of net export creation or diversion. Although none of the RTAs covered by the study was found to be net export creating, more than one third of the members of these RTAs are found to be positively affected by joining the RTAs.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 22296.
Date of creation: Jan 2006
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Bangladesh; SAFTA; Augmented Gravity Model; Trade Potential;
Other versions of this item:
- Mustafizur Rahman & Wasel Bin Shadat & Narayan Chandra Das, 2006. "Trade Potential in SAFTA: An Application of Augmented Gravity Model," CPD Working Paper 61, Centre for Policy Dialogue (CPD).
- F10 - International Economics - - Trade - - - General
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F15 - International Economics - - Trade - - - Economic Integration
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