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Third-Country Effects on the Formation of Free Trade Agreements

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  • Chen, Maggie
  • Joshi, Sumit

Abstract

The recent proliferation of free trade agreements (FTAs) has resulted in an increasingly complex network of preferential trading relationships. The economics literature has generally examined the formation of FTAs as a function of the participating countries' economic characteristics alone. In this paper, we show both theoretically and empirically that the decision to enter into an FTA is also crucially dependent on the participating countries' existing FTA relationships with third countries. Accounting for the interdependence of FTAs helps to explain a significant fraction of FTA formations that would not otherwise be predicted by countries' economic characteristics.

Suggested Citation

  • Chen, Maggie & Joshi, Sumit, 2010. "Third-Country Effects on the Formation of Free Trade Agreements," MPRA Paper 23507, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:23507
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    References listed on IDEAS

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    More about this item

    Keywords

    free trade agreements; third-country effect; loss sharing; concession erosion;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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