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Proliferating Regional Trade Arrangements: Why and Whither?

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  • Jong-Wha Lee

    (Korea University)

  • Innwon Park

    (Korea University)

  • Kwanho Shin

    (Korea University)

Abstract

This paper investigates why regional trade arrangements (RTAs) are proliferating extensively and how the effects of multiple RTAs, by interacting with each other, evolve over time. Our empirical analysis, based on an extended gravity model utilizing a large panel data set of 175 countries from 1948 to 1999, shows that RTAs on average increase global trade by raising intra-bloc trade without damaging extra-bloc trade. The net trade effects, however, heavily depend on the types of RTA strategic evolution over time, which we group as ¡°expansionary¡± RTAs, ¡°duplicate¡± RTAs or ¡°overlapping¡± RTAs. We find that countries excluded from an RTA can benefit more from duplicating a separate RTA than from joining an existing RTA. This result explains why the number of bilateral trade blocs, rather than the membership size of existing RTAs, is currently exploding. We also find that the net trade creation effects of RTAs are substantially lower for countries participating in overlapping RTAs. This result suggests that it is less likely that the currently proliferating RTAs will completely merge and lead the world economy to global free trade. Our empirical results are robust to controlling for the characteristics of countries that may influence the impact of RTAs.

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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0501010.

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Length: 48 pages
Date of creation: 28 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpit:0501010

Note: Type of Document - pdf; pages: 48
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Web page: http://128.118.178.162

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Keywords: RTA; Global Trade; Regional Trade; Trade Creation; Trade Diversion;

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Citations

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Cited by:
  1. Gil-Pareja, Salvador & Llorca-Vivero, Rafael & Martínez-Serrano, José Antonio, 2008. "Trade effects of monetary agreements: Evidence for OECD countries," European Economic Review, Elsevier, vol. 52(4), pages 733-755, May.
  2. Cardamone, Paola, 2007. "A Survey of the Assessments of the Effectiveness of Preferential Trade Agreements using Gravity Models," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 60(4), pages 421-473.
  3. Park, Innwon, 2008. "Regional Trade Agreements in East Asia: Will They Be Sustainable?," MPRA Paper 5068, University Library of Munich, Germany.
  4. Innwon Park, 2006. "East Asian Regional Trade Agreements: Do They Promote Global Free Trade?," Pacific Economic Review, Wiley Blackwell, vol. 11(4), pages 547-568, December.
  5. Salvatore, Dominick, 2009. "The challenges to the liberal trading system," Journal of Policy Modeling, Elsevier, vol. 31(4), pages 593-599, July.
  6. Lee, Jong-Wha & Shin, Kwanho, 2006. "Does regionalism lead to more global trade integration in East Asia?," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 283-301, December.
  7. Park, Innwon & Park, Soonchan, 2008. "Free Trade Agreements versus Customs Unions: An Examination of East Asia," MPRA Paper 11301, University Library of Munich, Germany.
  8. Maria Cipollina & Luca Salvatici, 2010. "Reciprocal Trade Agreements in Gravity Models: A Meta-Analysis," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 63-80, 02.
  9. Salvador Gil-Pareja, 2011. "Do nonreciprocal preference regimes increase exports?," ERSA conference papers ersa11p1561, European Regional Science Association.
  10. Amita Batra, 2006. "Asian Economic Integration ASEAN+3+1 or ASEAN+1s?," Trade Working Papers 22143, East Asian Bureau of Economic Research.
  11. Gil-Pareja, Salvador & Llorca-Vivero, Rafael & Martínez-Serrano, José Antonio, 2014. "Do nonreciprocal preferential trade agreements increase beneficiaries' exports?," Journal of Development Economics, Elsevier, vol. 107(C), pages 291-304.
  12. 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.
  13. Richard Pomfret, 2009. "Regionalism in the Asia-Pacific Region: How Wide, How Deep?," School of Economics Working Papers 2009-31, University of Adelaide, School of Economics.

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