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Economic Determinants Of The Timing Of Preferential Trade Agreement Formations And Enlargements

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  • Jeffrey H. Bergstrand
  • Peter Egger
  • Mario Larch

Abstract

type="main" xml:id="ecin12241-abs-0001"> Preferential trade agreements (PTAs) have proliferated over the past 60 years. While a small number of recent studies have examined empirically the economic determinants of the likelihood of a pair of countries having a PTA, this study explains empirically the timing of all PTA formations and enlargements from 1950 through 2006 using duration analysis. Our main and novel goal is to predict (in- and out-of-sample) a substantive share of these 1,560 PTA events using a parsimonious model with mainly economic variables, taking selection dynamics into account. Our analysis reveals that we can predict correctly in-sample the actual year of entry into force for 26% of the 1,560 bilateral PTA formations/enlargements in the period 1950–2006 among 10,518 pairings of 146 countries using only a few economic and political variables. Moreover, we can predict correctly in-sample 57% of these PTA events within a 10-year window leading up to the event using this model. The model also performs well out-of-sample for the near term (82%), but not if the out-of-sample period is very long. We conclude with an evaluation of the model's ability to predict the timing of the North American Free Trade Agreement, the European Union's formation and enlargements, and the model's ten most likely post-2006 PTA events. (JEL F14, F15)

Suggested Citation

  • Jeffrey H. Bergstrand & Peter Egger & Mario Larch, 2016. "Economic Determinants Of The Timing Of Preferential Trade Agreement Formations And Enlargements," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 315-341, January.
  • Handle: RePEc:bla:ecinqu:v:54:y:2016:i:1:p:315-341
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    File URL: http://hdl.handle.net/10.1111/ecin.2016.54.issue-1
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    Citations

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    Cited by:

    1. Tibor Besedeš & Erik P. Johnson & Xinping Tian, 2020. "Economic determinants of multilateral environmental agreements," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(4), pages 832-864, August.
    2. Florian Mölders, 2012. "On the Path to Trade Liberalization: Political Regimes in International Trade Negotiations," Discussion Papers of DIW Berlin 1245, DIW Berlin, German Institute for Economic Research.
    3. Ben Zissimos, 2011. "Why are Trade Agreements Regional?," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 32-45, February.
    4. Mario Larch & Yoto V. Yotov, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," CESifo Working Paper Series 6020, CESifo.
    5. Caroline Freund & Emanuel Ornelas, 2010. "Regional Trade Agreements," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 139-166, September.
    6. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    7. Emanuel Ornelas, 2012. "Preferential Trade Agreements and the Labor Market," CEP Discussion Papers dp1117, Centre for Economic Performance, LSE.
    8. Mario Larch & Leandro Navarro, 2022. "Uncertainty in Global Sourcing: Learning, Sequential Offshoring, and Selection Patterns," CESifo Working Paper Series 10043, CESifo.
    9. Pierre Sauvé & Anirudh Shingal, 2016. "Why Do Economies Enter into Preferential Agreements on Trade in Services? Assessing the Potential for Negotiated Regulatory Convergence in Asian Services Markets," Asian Development Review, MIT Press, vol. 33(1), pages 56-73, March.
    10. Teresa L. Cyrus, 2021. "Why Do Countries Form Regional Trade Agreements? A Discrete-Time Survival Analysis," Open Economies Review, Springer, vol. 32(2), pages 417-434, April.
    11. Peter H. Egger & Anirudh Shingal, 2017. "Granting preferential market access in services sequentially versus jointly with goods," The World Economy, Wiley Blackwell, vol. 40(12), pages 2901-2936, December.
    12. Bergstrand, Jeffrey H. & Egger, Peter, 2013. "What determines BITs?," Journal of International Economics, Elsevier, vol. 90(1), pages 107-122.
    13. Benedikt Heid & Wenxi Lu, 2022. "Genetic distance, cultural differences, and the formation of regional trade agreements," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(1), pages 1-23, February.
    14. Xiaohua Bao & Xiaozhuo Wang, 2019. "The Evolution and Reshaping of Globalization: A Perspective Based on the Development of Regional Trade Agreements," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 27(1), pages 51-71, January.
    15. Adriana R. Cardozo Silva & Luis R. Diaz Pavez & Inmaculada Martínez‐Zarzoso & Felicitas Nowak‐Lehmann, 2022. "The impact of COVID‐19 government responses on remittances in Latin American countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(4), pages 803-822, May.
    16. Peter Egger & Anirudh Shingal, 2021. "Determinants of services trade agreement membership," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 21-64, February.
    17. Navarro, Leandro, 2021. "Multinational firms' organisational dynamics: Competition intensity and the ownership decision under uncertainty," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242389, Verein für Socialpolitik / German Economic Association.
    18. Xing Yao & Yongzhong Zhang & Rizwana Yasmeen & Zhen Cai, 2021. "The impact of preferential trade agreements on bilateral trade: A structural gravity model analysis," PLOS ONE, Public Library of Science, vol. 16(3), pages 1-20, March.

    More about this item

    JEL classification:

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

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