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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. Harrison, Ann, 1991. "Openness and growth : a time series, cross-country analysis for developing countries," Policy Research Working Paper Series 809, The World Bank.
  2. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
  3. 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, vol. 77(1), pages 63-76, February.
  4. Roberto Chang & Linda Kaltani & Norman Loayza, 2005. "Openness can be good for Growth: The Role of Policy Complementarities," DEGIT Conference Papers c010_021, DEGIT, Dynamics, Economic Growth, and International Trade.
  5. 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, vol. 40(3), pages 523-44, April.
  6. 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.
  7. Feenstra, Robert C., 1996. "Trade and uneven growth," Journal of Development Economics, Elsevier, vol. 49(1), pages 229-256, April.
  8. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
  9. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
  10. Ben-David, Dan, 1995. "Trade and Convergence Among Countries," CEPR Discussion Papers 1126, C.E.P.R. Discussion Papers.
  11. Freund, Caroline & Bolaky, Bineswaree, 2008. "Trade, regulations, and income," Journal of Development Economics, Elsevier, vol. 87(2), pages 309-321, October.
  12. Sebastian Edwards, 1997. "Openness, Productivity and Growth: What Do We Really Know?," NBER Working Papers 5978, National Bureau of Economic Research, Inc.
  13. Slaughter, Matthew J., 2001. "Trade liberalization and per capita income convergence: a difference-in-differences analysis," Journal of International Economics, Elsevier, vol. 55(1), pages 203-228, October.
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