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Do Customs Union Members Engage In More Bilateral Trade Than Free Trade Agreement Members?

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Author Info
Jayjit Roy () (SMU)
Abstract

This paper provides the first empirical analysis directly comparing the effects of customs unions (CUs) and free trade agreements (FTAs) on members' bilateral trade, while addressing the biases arising from log-linearization of the gravity model and crucial time-invariant unobservables. Since Fiorentino et al. (2007) question the popularity of CUs relative to FTAs, considering the latter to be more practical in the current trading climate, such a comparison seems especially relevant. While Baier and Bergstrand (2007) find an FTA to approximately double membersí bilateral trade after 10 years, it is actually a CU, and not an FTA, which doubles bilateral trade.

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Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0803.

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Date of creation: Jul 2008
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Handle: RePEc:smu:ecowpa:803

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Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Phone: 214-768-2715
Fax: 214-768-1821
Web page: http://www.smu.edu/economics

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Related research
Keywords: Free Trade Agreements; Customs Unions; Gravity Model;

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Find related papers by JEL classification:
F1 - International Economics - - Trade

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  1. Krueger, Anne O., 1997. "Free trade agreements versus customs unions," Journal of Development Economics, Elsevier, vol. 54(1), pages 169-187, October. [Downloadable!] (restricted)
  2. Daniel J. Henderson & Daniel L. Millimet, 2008. "Is gravity linear?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 137-172. [Downloadable!]
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  3. Ghosh, Sucharita & Yamarik, Steven, 2004. "Are regional trading arrangements trade creating?: An application of extreme bounds analysis," Journal of International Economics, Elsevier, vol. 63(2), pages 369-395, July. [Downloadable!] (restricted)
  4. Christopher S. Magee, 2003. "Endogenous Preferential Trade Agreements: An Empirical Analysis," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  5. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March. [Downloadable!]
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  6. 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. [Downloadable!] (restricted)
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  7. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, 09. [Downloadable!] (restricted)
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