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Preferential trade agreements and their role in world trade

  • Denis Medvedev

    ()

The author investigates the effects of preferential trade agreements (PTAs) on bilateral trade flows using a comprehensive database of PTAs in force and a detailed matrix of world trade. He shows that total trade between PTA partners is a poor proxy for preferential trade (trade in tariff lines where preferences are likely to matter): while the former amounted to one-third of global trade in 2000-02, the latter was between one-sixth and one-tenth of world trade. His gravity model estimates indicate that using total rather than preferential trade to assess the impact of PTAs leads to a significant downward bias in the PTA coefficient. The author finds that product exclusions and long phase-in periods significantly limit preferential trade, and their removal could more than double trade in tariff lines above 3 percent of most-favored-nation (MFN) duties. He also shows that the effects of PTAs on trade vary by type of agreement and are increasing in the incomes of PTA partners.

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Article provided by Springer in its journal Review of World Economics.

Volume (Year): 146 (2010)
Issue (Month): 2 (June)
Pages: 199-222

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Handle: RePEc:spr:weltar:v:146:y:2010:i:2:p:199-222
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