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The Spillover Effects of Regional Trade Agreements on Trade

Author

Listed:
  • De Silva, Dakshina G.

    (Lancaster University)

  • Lee, Soon Cheul

    (Busan University of Foreign Studies)

  • McComb, Robert P.

    (Texas Tech University)

  • Zanardi, Maurizio

    (Lancaster University)

Abstract

The purpose of this paper is to examine whether or not there is a spillover effect of third countries’ regional trade agreements (RTAs) on their bilateral trade relationships. To identify the RTA spillover effects, we expand a gravity model into a third-country framework using a dataset of bilateral trade and RTAs for 62 country-pairs over the period 2002-2013. We construct a weighted thirdcountries’ RTA contiguity matrix as well as a spatially-weighted matrix to identify both the spillover and spatial effects of RTA on trade flows. The results show that the spillover effects of RTAs on trade are positive while the spatial effects of RTA are negative and imply that third parties’ RTAs have complementary effects on bilateral trade while the existence of neighbors in the RTA between the two trade partners reduces their bilateral trade. As a result, the proliferation of RTAs expand international trade through spillover effects as well as trade creation and trade diversion.

Suggested Citation

  • De Silva, Dakshina G. & Lee, Soon Cheul & McComb, Robert P. & Zanardi, Maurizio, 2018. "The Spillover Effects of Regional Trade Agreements on Trade," Working Papers 18-8, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepwp:2018_008
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    More about this item

    Keywords

    regional trade agreements; spillover effects; spatial effects; gravity equation;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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