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Does it matter who you sign with ? comparing the impacts of north-south and south-south trade agreements on bilateral trade

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  • Behar, Alberto
  • Criville, Laia Cirera i

Abstract

Free trade agreements lead to a rise in bilateral trade regardless of whether the signatories are developed or developing countries. Furthermore, the percentage increase in bilateral trade is higher for South-South agreements than for North-South agreements. In this paper, the results are robust across a number of gravity model specifications in which the analysis controls for the endogeneity of free trade agreements (with bilateral fixed effects) and also takes account of multilateral resistance in both estimation (with country-time fixed effects) and comparative statics (analytically). The analytical model shows that multilateral resistance dampens the impact of free trade agreements on trade by less in South-South agreements than in North-South agreements, which accentuates the difference implied by the gravity model coefficients, and that this difference gets larger as the number of signatories rises. For example, allowing for lags and multilateral resistance, a four-country North-South agreement raises bilateral trade by 53 percent while the analogous South-South impact is 107 percent.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5626.

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Date of creation: 01 Apr 2011
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Handle: RePEc:wbk:wbrwps:5626

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Related research

Keywords: Free Trade; Trade Law; Trade Policy; Economic Theory&Research; Emerging Markets;

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  1. Santos Silva, Joao & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  2. Schiff, Maurice & Wang, Yanling, 2004. "North-South technology diffusion, regional integration, and the dynamics of the natural trading partners hypothesis," Policy Research Working Paper Series 3434, The World Bank.
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Cited by:
  1. Alberto Behar & Benjamin D. Nelson, 2012. "Trade Flows, Multilateral Resistance, and Firm Heterogeneity," IMF Working Papers 12/297, International Monetary Fund.

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