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Trade creation and diversion effects in the Mediterranean area: Econometric analysis by gravity model

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  • Bassem Kahouli
  • Samir Maktouf

Abstract

Since the early 1990s, the world has seen a proliferation of free trade agreements (FTAs). A major goal of free trade is to develop trade between its signatories. The gravity model is used to analyze the bilateral trade data against the variables of the relative size of the pair of countries involved in trade, distance, common border and language and dummies for each of the FTAs. This article focuses on the studying of the influence of the FTAs in the Mediterranean countries in which we integrate the role of the regional dummy EU-15, Economic and Monetary Union (eurozone), the Arab Maghreb Union and AGADIR Agreement (FTA between Jordan, Egypt, Tunisia and Morocco) in trade flows. In addition, this work aims to detect the impact of the global financial crisis on export flows between the FTAs in the Mediterranean region. The use of regional variables in gravity models designed to determine whether the FTAs contribute to the creation or trade diversion. This study examines a cross section and panel (static and dynamic) of 27 countries for 1980-2011. The results show the existence of a strong relationship between the factors of FTAs and trade flows.

Suggested Citation

  • Bassem Kahouli & Samir Maktouf, 2015. "Trade creation and diversion effects in the Mediterranean area: Econometric analysis by gravity model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(1), pages 76-104, February.
  • Handle: RePEc:taf:jitecd:v:24:y:2015:i:1:p:76-104
    DOI: 10.1080/09638199.2013.873479
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    References listed on IDEAS

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    Cited by:

    1. Albert Millogo & Ines Trojette, 2020. "Pro-trade effects of MENA immigrants in France: does governance matter?," Economics Bulletin, AccessEcon, vol. 40(4), pages 3219-3230.
    2. Maria Cipollina & Federica Demaria, 2020. "The Trade Effect of the EU’s Preference Margins and Non-Tariff Barriers," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 13(9), pages 1-20, September.
    3. Bassem Kahouli & Anis Omri & Anissa Chaibi, 2014. "Environmental Regulations, Trade, and Foreign Direct Investment: Evidence from Gravity Equations," Working Papers 2014-189, Department of Research, Ipag Business School.
    4. Yoon Heo & Nguyen Khanh Doanh, 2020. "Is NAFTA Trade‐Creating or Trade‐Diverting? A System GMM Approach," Economic Papers, The Economic Society of Australia, vol. 39(3), pages 222-238, September.
    5. Afolabi Luqman.O & Nor Aznin Abu Bakar & Mukhriz Izraf Azman Aziz, 2015. "Regionalism and ECOWAS Trade Performance: A Gravity Model Approach," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 29(2), pages 59-71.
    6. Kahouli, Bassem & Omri, Anis, 2017. "Foreign direct investment, foreign trade and environment: New evidence from simultaneous-equation system of gravity models," Research in International Business and Finance, Elsevier, vol. 42(C), pages 353-364.
    7. M. Bruna Zolin & Utai Uprasen, 2018. "Trade creation and diversion: effects of EU enlargement on agricultural and food products and selected Asian countries," Asia Europe Journal, Springer, vol. 16(4), pages 351-373, December.
    8. A. Fernández & E. Ferrándiz & M. D. León, 2016. "Proximity dimensions and scientific collaboration among academic institutions in Europe: The closer, the better?," Scientometrics, Springer;Akadémiai Kiadó, vol. 106(3), pages 1073-1092, March.
    9. Ramasamy Murugesan & Murugesan Poovendhan, 2016. "Analysis of factors determining the inward FDI in top seven Indian states from top seven source countries using gravity model," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 11(3), pages 209-230.
    10. Al Faithrich C. Navarrete & Virgillio M. Tatlonghari, 2018. "An empirical assessment of the effects of the Japan–Philippine Economic Partnership Agreement (JPEPA) on Philippine exports to Japan: a gravity model approach," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 7(1), pages 1-20, December.
    11. Kahouli, Bassem & Maktouf, Samir, 2015. "The determinants of FDI and the impact of the economic crisis on the implementation of RTAs: A static and dynamic gravity model," International Business Review, Elsevier, vol. 24(3), pages 518-529.
    12. Turnbull, Christopher & Sun, Sizhong & Anwar, Sajid, 2016. "Trade liberalisation, inward FDI and productivity within Australia’s manufacturing sector," Economic Analysis and Policy, Elsevier, vol. 50(C), pages 41-51.

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