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What Drives Regional Trade Agreements that Work?

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    Abstract

    Economists have recently begun trying to explain that pattern of Regional Trade Agreement (RTA) formation around the world. This paper adds to the developing literature by taking into account the fact that many of the RTAs signed are not effectively implemented. The analysis proceeds in two steps: the gravity model is used to establish which RTAs are effectively implemented, in the sense that they positively and significantly increase trade flows between member countries compared to the flows predicted by the gravity model; second a hypothesis is tested about the pattern of effective RTAs – that successful RTAs are found between pairs of countries which send a large share of their exports to each other’s markets. Convincing evidence is found to support this hypothesis, including evidence that export interest from one partner alone does not improve the probability of an effective RTA.

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    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP07-2005.pdf
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    Bibliographic Info

    Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 07-2005.

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    Length: 49
    Date of creation: Nov 2005
    Date of revision:
    Handle: RePEc:gii:giihei:heiwp07-2005

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    Keywords: International Economics; Trade; Regional Trade Agreements.;

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    1. Richard E. Baldwin, 1997. "The Causes of Regionalism," The World Economy, Wiley Blackwell, vol. 20(7), pages 865-888, November.
    2. Tenreyro, Silvana & Barro, Robert & Alesina, Alberto, 2002. "Optimal Currency Areas," Scholarly Articles 4553033, Harvard University Department of Economics.
      • Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356 National Bureau of Economic Research, Inc.
    3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    4. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
    5. Andrew Rose, 2005. "Which International Institutions Promote International Trade?," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 682-698, 09.
    6. Soloaga, Isidro & Winters, L. Alan, 1999. "Regionalism in the Nineties: What Effect on Trade?," CEPR Discussion Papers 2183, C.E.P.R. Discussion Papers.
    7. Baldwin, Richard, 1993. "A Domino Theory of Regionalism," CEPR Discussion Papers 857, C.E.P.R. Discussion Papers.
    8. Silvana Tenreyro & Robert J. Barro, 2002. "Economic effects of currency unions," Working Papers 02-4, Federal Reserve Bank of Boston.
    9. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
    10. Susanna Thede, 2005. "Determinants of Bilateral Trade Protection," The World Economy, Wiley Blackwell, vol. 28(3), pages 313-328, 03.
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    Cited by:
    1. Richard Baldwin, 2008. "Big-Think Regionalism: A Critical Survey," NBER Working Papers 14056, National Bureau of Economic Research, Inc.
    2. Baldwin, Richard & Jaimovich, Dany, 2010. "Are Free Trade Agreements Contagious?," CEPR Discussion Papers 7904, C.E.P.R. Discussion Papers.
    3. Itai Agur, 2007. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Economics Working Papers ECO2007/17, European University Institute.
    4. Roland Rieder, 2006. "Playing Dominoes in Europe: An Empirical Analysis of the Domino Theory for the EU, 1962-2004," IHEID Working Papers 11-2006, Economics Section, The Graduate Institute of International Studies, revised Jun 2006.
    5. Baldwin, Richard & Rieder, Roland, 2007. "A Test of Endogenous Trade Bloc Formation Theory on EU Data," CEPR Discussion Papers 6389, C.E.P.R. Discussion Papers.

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