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The impact of North-South and South-South trade agreements on bilateral trade

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  • Alberto Behar

Abstract

Free trade agreements (FTAs) lead to a rise in bilateral trade even if the signatories include developing countries.� Furthermore, the percentage increase in bilateral trade is higher for South-South agreements than for North-South agreements.� The results are robust across a number of gravity model specifications in which we control for the endogeneity of FTAs (with bilateral fixed effects) and also take account of multilateral resistance in both estimation (with country-time fixed effects) and comparative statics (analytically).� Our analytical model shows that multilateral resistance dampens the impact of FTAs on trade by less in South-South agreements than in North-South agreements, which accentuates the difference implied by our gravity model coefficients, and that this difference gets larger as the number of signatories rises.� For example, allowing for lags and multilateral resistance, a four-country North-South agreement raises bilateral trade by 53% while the analogous South-South impact is 107%.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2010-30.

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Date of creation: 01 Aug 2010
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Handle: RePEc:oxf:wpaper:csae-wps/2010-30

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  1. Anson, José & Cadot, Olivier & de Melo, Jaime & Estevadeordal, Antoni & Suwa Eisenmann, Akiko & Tumurchudur, Bolormaa, 2003. "Rules of Origin in North-South Preferential Trading Arrangements with an Application to NAFTA," CEPR Discussion Papers 4166, C.E.P.R. Discussion Papers.
  2. Bohara, Alok K. & Gawande, Kishore & Sanguinetti, Pablo, 2004. "Trade diversion and declining tariffs: evidence from Mercosur," Journal of International Economics, Elsevier, vol. 64(1), pages 65-88, October.
  3. Christopher Adam & David Cobham, 2008. "Alternative Exchange Rate Regimes for MENA countries: Gravity Model Estimates of the Trade Effects," CERT Discussion Papers 0803, Centre for Economic Reform and Transformation, Heriot Watt University.
  4. Céline CARRERE & Jaime MELO DE, 2004. "Are Different Rules of Origin Equally Costly? Estimates from NAFTA," Working Papers 200412, CERDI.
  5. Alberto Behar & Benjamin D. Nelson, 2009. "Exports and Logistics," Economics Series Working Papers 439, University of Oxford, Department of Economics.
  6. Alberto Behar & Benjamin D. Nelson, 2012. "Trade Flows, Multilateral Resistance, and Firm Heterogeneity," IMF Working Papers 12/297, International Monetary Fund.
  7. Karacaovali, Baybars & Limão, Nuno, 2008. "The clash of liberalizations: Preferential vs. multilateral trade liberalization in the European Union," Journal of International Economics, Elsevier, vol. 74(2), pages 299-327, March.
  8. Jeffrey A. Frankel, 1998. "The Regionalization of the World Economy," NBER Books, National Bureau of Economic Research, Inc, number fran98-1, July.
  9. Lee, Jong-Wha & Shin, Kwanho, 2005. "Does Regionalism Lead to More Global Trade Integration in East Asia?," MPRA Paper 706, University Library of Munich, Germany.
  10. Cies´lik, Andrzej & Hagemejer, Jan, 2009. "Assessing the Impact of the EU-sponsored Trade Liberalization in the MENA Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 24, pages 343-368.
  11. Maurice Schiff & L. Alan Winters, 2003. "Regional Integration and Development," World Bank Publications, The World Bank, number 15172, August.
  12. Carrere, Celine, 2006. "Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model," European Economic Review, Elsevier, vol. 50(2), pages 223-247, February.
  13. Anne O. Krueger, 1999. "Are Preferential Trading Arrangements Trade-Liberalizing or Protectionist?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 105-124, Fall.
  14. Antoni Estevadeordal & Kati Suominen, 2005. "Rules of Origin in Preferential Trading Arrangements: Is All Well with the Spaghetti Bowl in the Americas?," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
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Cited by:
  1. Khadan, Jeetendra & Hosein, Roger, 2014. "Trade, Economic and Welfare impacts of the CARICOM-Canada Free Trade Agreement," MPRA Paper 54836, University Library of Munich, Germany.

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