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Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism

  • Scott L. Baier
  • Jeffrey H. Bergstrand
  • Peter Egger
  • Patrick A. McLaughlin

This paper argues that the 'competitive liberalisation' of national governments of the past several decades has created a 'market' for regional economic integration agreements (EIAs). Evidence shows that countries that have selected into EIAs - such as free trade agreements - have 'chosen well' in the sense that the same economic characteristics that explain and predict bilateral EIAs also explain and predict bilateral trade flows. We show that previous ex post empirical evaluations of the effects of EIAs on trade have tended to underestimate the effects due to ignoring the (endogenous) self-selection bias of country pairs into EIAs. Accounting for this bias, we find that European economic integration had a much larger impact on trade over the period 1960-2000 than previously found, and other more recent EIAs have had economically and statistically significant effects on members' trade. The results shed further light on understanding the causes and consequences of the growth of regionalism. Copyright 2008 The Authors.

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Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 31 (2008)
Issue (Month): 4 (04)
Pages: 461-497

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Handle: RePEc:bla:worlde:v:31:y:2008:i:4:p:461-497
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  1. Peter Egger, . "A Note on the Proper Econometric Specification of the Gravity Equation," WIFO Working Papers 108, WIFO.
  2. Céline CARRERE, 2003. "Revisiting the Effects of Regional Trading Agreements on trade flows with Proper Specification of the Gravity Model," Working Papers 200310, CERDI.
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  4. John Whalley, 2006. "Recent Regional Agreements: Why so many, why so much Variance in Form, why Coming so fast, and where are they Headed?," CESifo Working Paper Series 1790, CESifo Group Munich.
  5. repec:att:wimass:9713 is not listed on IDEAS
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  9. Emanuel Ornelas, 2005. "Rent Destruction and the Political Viability of Free Trade Agreements," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1475-1506, November.
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  12. C. Fred Bergsten, 1996. "Competitive Liberalization and Global Free Trade: A Vision for the Early 21st Century," Working Paper Series WP96-15, Peterson Institute for International Economics.
  13. I-Hui Cheng & Howard J. Wall, 2004. "Controlling for heterogeneity in gravity models of trade and integration," Working Papers 1999-010, Federal Reserve Bank of St. Louis.
  14. McLaren, John, 1997. "Size, Sunk Costs, and Judge Bowker's Objection to Free Trade," American Economic Review, American Economic Association, vol. 87(3), pages 400-420, June.
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  16. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
  17. Dean A. DeRosa & John P. Gilbert, 2005. "Predicting Trade Expansion under FTAs and Multilateral Agreements," Working Paper Series WP05-13, Peterson Institute for International Economics.
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