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Assessing the Impact of Trade Agreements on Trade

Author

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  • Monique Ebell

Abstract

One of the key issues facing the UK in the wake of the advisory referendum result to leave the European Union is the precise nature of its relationship with the European Union. At one extreme would be continued membership in the European Economic Area, including membership in the single market. Other options would be either no free trade agreement (FTA) with the EU at all or a less comprehensive FTA which stops short of single market membership. This paper compares the ability of EEA membership and less comprehensive FTAs to generate trade in goods and services. We investigate this question using empirical gravity model methodology and the most recent available data from 42 countries. We use recently developed econometric methods to deal with observations of zero trade flows and issues connected with endogeneity. The main finding is that while EEA membership is associated with substantial and statistically significant increases in bilateral services trade flows, membership in less comprehensive FTAs is not associated with any significant increase in bilateral services trade. For goods, EEA membership is associated with larger bilateral trade flows than are less comprehensive FTAs. These results suggest that it might be difficult to replace, on an exit from a European Union, lost trade flows with the EU by means of shallower FTAs with the EU or with third countries.

Suggested Citation

  • Monique Ebell, 2016. "Assessing the Impact of Trade Agreements on Trade," National Institute Economic Review, National Institute of Economic and Social Research, vol. 238(1), pages 31-42, November.
  • Handle: RePEc:sae:niesru:v:238:y:2016:i:1:p:r31-r42
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    Citations

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    Cited by:

    1. Swati Dhingra & Hanwei Huang & Gianmarco Ottaviano & João Paulo Pessoa & Thomas Sampson & John Van Reenen, 2017. "The costs and benefits of leaving the EU: trade effects," Economic Policy, CEPR;CES;MSH, vol. 32(92), pages 651-705.
    2. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CEP Discussion Papers dp1499, Centre for Economic Performance, LSE.
    3. Forte, Giuseppe & Portes, Jonathan, 2017. "Macroeconomic Determinants of International Migration to the UK," GLO Discussion Paper Series 69, Global Labor Organization (GLO).
    4. Bergin, Adele & Economides, Philip & Garcia-Rodriguez, Abian & Murphy, Gavin, 2019. "Ireland and Brexit: modelling the impact of deal and no-deal scenarios," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    5. Patrick Minford & Vicky Pryce, 2017. "The Prospects for Brexit: Two Views," Economic Affairs, Wiley Blackwell, vol. 37(3), pages 422-427, October.
    6. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CESifo Working Paper Series 6668, CESifo.
    7. Sampson, Thomas, 2017. "Brexit: the economics of international disintegration," LSE Research Online Documents on Economics 86591, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    gravity models of trade; benefits of economic integration; free trade agreements; single market;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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