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Heterogeneous Effects of Preferential Trade Agreements: How does Partner Similarity Matter?

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  • Cheong, Juyoung
  • Kwak, Do Won
  • Tang, Kam Ki

Abstract

This paper examines how dissimilarity of partner country characteristics affects the change in trade flows under a preferential trade agreement (PTA). Our results show that the more similar the partner countries are, the larger the increase in intra-bloc trade is under a PTA. Particularly, there is a substantial “development neighborhood premium”: the gain for developing countries from a PTA among themselves is about two and a half times that from partnering with industrial countries. Our findings challenge the perception that by becoming more integrated with industrial countries, developing countries could automatically gain access to a much larger and lucrative export market.

Suggested Citation

  • Cheong, Juyoung & Kwak, Do Won & Tang, Kam Ki, 2015. "Heterogeneous Effects of Preferential Trade Agreements: How does Partner Similarity Matter?," World Development, Elsevier, vol. 66(C), pages 222-236.
    • Handle: RePEc:eee:wdevel:v:66:y:2015:i:c:p:222-236
    DOI: 10.1016/j.worlddev.2014.08.021
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