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Free Trade Agreements with cross-country fixed geo-political constraints

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  • Perju, Genoveva-Elena

Abstract

The paper explores the role of the gravity variables in explaining the FTA-s formation. We develop a new theoretical benchmark for the use of the gravity equation modeling them as fixed resources in the budget constraint of the Nash equilibrium definition of an FTA. We show the existence of an endogenous relationship between gravity variables and bilateral trade so that we code FTA-s as a quantitative variable and we use the simultaneous equations method of estimation on 30195 observations from 1960-2000. There is evidence for bilateral trade being the main determinant of free trade agreements. Other statistically significant relationships are the sharing a common language or common cultural heritages well as being a former colony of the same colonizer which are positively correlated with the FTA formation.

Suggested Citation

  • Perju, Genoveva-Elena, 2009. "Free Trade Agreements with cross-country fixed geo-political constraints," MPRA Paper 56986, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:56986
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    References listed on IDEAS

    as
    1. Grossman, Gene M & Helpman, Elhanan, 1995. "Trade Wars and Trade Talks," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 675-708, August.
    2. 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.
    3. 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.
    4. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    free trade agreements; gravity equation; Nash equilibrium;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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