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Expanding RTAs, trade flows, and the multinational enterprise

  • Michele Fratianni

    ([1] Kelley School of Business, Indiana University, Bloomington, USA[2] Department of Economics, Università Politecnica delle Marche, Ancona, Italy)

  • Chang Hoon Oh

    (Faculty of Business, Brock University, St Catharines, Ontario, Canada)

We test the relationship between the size of regional trade agreements (RTAs) and openness by using a gravity equation with multilateral trade factors. Our sample includes 11 RTAs, seven with constant membership and four with expanding membership. Regional trade bias declines with the size of the club; three of the four expanding RTAs have already surpassed their “optimal” size. We also explore the link between openness of the RTA and the geographic strategy of the multinational enterprise. We find strong evidence in favor of the regionalization strategy, which has been enhanced by the presence of RTAs.

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Article provided by Palgrave Macmillan & Academy of International Business in its journal Journal of International Business Studies.

Volume (Year): 40 (2009)
Issue (Month): 7 (September)
Pages: 1206-1227

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Handle: RePEc:pal:jintbs:v:40:y:2009:i:7:p:1206-1227
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