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FTA and Economic Growth: A Nonparametric Approach

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  • Jung Hur

    ()
    (Sogang University)

  • Cheolbeom Park

    ()
    (Korea University)

Abstract

This paper assesses whether a bilateral FTA exerts a positive growth effect of the economies of the two countries engaging in the FTA. It employs a nonparametric matching approach, which is more faithful to questions posed by trade theories, imposes no specific functional froms on the relation, and can be applied to a broad range of data structures. Unlike the results from earlier linear regression model approaches, we find an insignificant effect of the FTA on total economic growth. In particular, we demonstrate that an FTA exerts no significant growth effects in the one-to-10-year period after its launch. Furthermore, we detect an upward trend in the gap between the growth rates of per capita real GDP within a bilateral FTA. This implies uneven FTA effects across within an FTA, which may explain, in part, the insignificant effects of the FTA on the total economic growth.

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Bibliographic Info

Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 1009.

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Date of creation: 2010
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Handle: RePEc:iek:wpaper:1009

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Keywords: Free trade agreement; Growth; Matching; Treatment effect;

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  1. Ben-David, D., 1995. "Trade and Convergence Among Countries," Papers, Tel Aviv 35-95, Tel Aviv.
  2. Dollar, David, 1992. "Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 40(3), pages 523-44, April.
  3. Edwards, Sebastian, 1998. "Openness, Productivity and Growth: What Do We Really Know?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(447), pages 383-98, March.
  4. Feenstra, R.C., 1990. "Trade And Uneven Growth," Papers, California Davis - Institute of Governmental Affairs 353, California Davis - Institute of Governmental Affairs.
  5. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, Elsevier, vol. 71(1), pages 72-95, March.
  6. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, Elsevier, vol. 64(1), pages 29-63, October.
  7. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, Springer, vol. 9(2), pages 131-165, 06.
  8. Harrison, Ann, 1991. "Openness and growth : a time series, cross-country analysis for developing countries," Policy Research Working Paper Series, The World Bank 809, The World Bank.
  9. Roberto Chang, & Linda Kaltani & Norman Loayza, 2006. "Openness Can be Good for Growth: The Role of Policy Complementarities," Working Papers Central Bank of Chile, Central Bank of Chile 373, Central Bank of Chile.
  10. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, Elsevier, vol. 76(2), pages 384-399, December.
  11. Slaughter, Matthew J., 2001. "Trade liberalization and per capita income convergence: a difference-in-differences analysis," Journal of International Economics, Elsevier, Elsevier, vol. 55(1), pages 203-228, October.
  12. Freund, Caroline & Bolaky, Bineswaree, 2008. "Trade, regulations, and income," Journal of Development Economics, Elsevier, Elsevier, vol. 87(2), pages 309-321, October.
  13. Baier, Scott L. & Bergstrand, Jeffrey H., 2009. "Estimating the effects of free trade agreements on international trade flows using matching econometrics," Journal of International Economics, Elsevier, Elsevier, vol. 77(1), pages 63-76, February.
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