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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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23507.

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Date of creation: Jun 2010
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Handle: RePEc:pra:mprapa:23507

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Keywords: free trade agreements; third-country effect; loss sharing; concession erosion;

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References

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  1. Pravin Krishna, 1998. "Regionalism And Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 227-250, February.
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  5. Chen, Maggie & Joshi, Sumit, 2010. "Third-Country Effects on the Formation of Free Trade Agreements," MPRA Paper 23507, University Library of Munich, Germany.
  6. Ornelas, Emanuel, 2005. "Trade creating free trade areas and the undermining of multilateralism," European Economic Review, Elsevier, vol. 49(7), pages 1717-1735, October.
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  10. 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.
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  16. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
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  18. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
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  20. Magee Christopher S, 2003. "Endogenous Preferential Trade Agreements: An Empirical Analysis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-19, December.
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Citations

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Cited by:
  1. Gianluca Orefice, 2013. "International Migration and Trade Agreements: the new role of PTAs," FIW Working Paper series 111, FIW.
  2. Chen, Maggie & Joshi, Sumit, 2010. "Third-Country Effects on the Formation of Free Trade Agreements," MPRA Paper 23507, University Library of Munich, Germany.
  3. Denise Konan & Keith E. Maskus, 2011. "Preferential Trade And Welfare With Differentiated Products," Working Papers 201101, University of Hawaii at Manoa, Department of Economics.
  4. Angela Abbate & Luca De Benedictis & Giorgio Fagiolo & Lucia Tajoli, 2012. "The International Trade Network in Space and Time," LEM Papers Series 2012/17, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  5. Jeffrey H. Bergstrand & Peter Egger, 2011. "What Determines BITs?," CESifo Working Paper Series 3514, CESifo Group Munich.
  6. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2014. "Can Trade Agreements Curtail Trade Creation and Prevent Trade Diversion," Discussion Papers Series 500, School of Economics, University of Queensland, Australia.

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