Mixed effects of free trade zone and agreement

This study examines how free trade agreements (FTAs) and membership in the World Trade Organization (WTO) affect international trade flows, focusing on the European Union (EU). Using a gravity model and panel data, it analyses how trade relates to economic size, distance, and institutional ties. In the baseline model, EU membership appears to reduce trade, largely because EU countries represent a small share of global partners. However, when trade is separated into intra-EU and extra-EU flows, the EU membership coefficient becomes positive, showing that integration strongly increases trade within the bloc. By contrast, FTAs display negative coefficients in the EU-focused model. This suggests that in a highly integrated market like the EU, smaller economies may benefit more from agreements, while the EU's internal market reduces the relative importance of broader frameworks such as FTAs. Overall, the findings highlight the complex, context-dependent effects of trade agreements.