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Are Regional Trading Partners "Natural"?


  • Pravin Krishna


A central statement of the theory of natural trading partners is that preferential trading with regional trading partners is less likely to be trade diverting and therefore geographically proximate partners are to be considered "natural" partners for preferential arrangements. This paper examines this question empirically. The analytical framework involves a general equilibrium model of preferential trade and an econometric model with tight links to this theory. This framework is used to implement tests of the natural trading partners hypothesis using U.S. trade data for the years 196495: Welfare changes that would result from preferential tariff reductions by the United States against various trading partners are first estimated, and correlations with bilateral "distance" measures (with and without controls for income levels) are then examined. Since the argument for "natural" trading partners is based on the greater likelihood of geographically proximate countries to be more significant trading partners, correlations between the welfare change estimates and bilateral trade volume are examined as well. Both geographic proximity and trade volume are found to have no effect. Thus this paper is unable to find any support for the natural trading partners theory in U.S. data.

Suggested Citation

  • Pravin Krishna, 2003. "Are Regional Trading Partners "Natural"?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 202-231, February.
  • Handle: RePEc:ucp:jpolec:v:111:y:2003:i:1:p:202-231

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    References listed on IDEAS

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    Cited by:

    1. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, vol. 94(4), pages 870-895, September.
    2. Evans, Lewis, 2005. "The Efficiency Test under Competition Law and Regulation in Small Distant Open Economy that is New Zealand," Working Paper Series 3863, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    3. Calvo-Pardo, Hector & Freund, Caroline & Ornelas, Emanuel, 2009. "The ASEAN free trade agreement : impact on trade flows and external trade barriers," Policy Research Working Paper Series 4960, The World Bank.
    4. Marco Fugazza & Frédéric Robert-Nicoud, 2014. "The “Emulator Effect” of the Uruguay Round on US Regionalism," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 1049-1078, November.
    5. Lewis Evans and Patrick Hughes, 2003. "Competition Policy in Small Distant Open Economies: Some Lessons from the Economics Literature," Treasury Working Paper Series 03/31, New Zealand Treasury.
    6. repec:ilo:ilowps:469183 is not listed on IDEAS
    7. Maurice Schiff & Yanling Wang, 2007. "North-South technology diffusion, regional integration, and the dynamics of the “natural trading partners” hypothesis," Revue d’économie du développement, De Boeck Université, vol. 15(5), pages 69-84.
    8. Schiff, Maurice & Wang, Yanling, 2009. "The Regional Dimension of North-South Trade-Related R&D Spillovers," Policy Research Working Paper Series 4826, The World Bank.
    9. Baldwin, Richard, 2011. "21st century regionalism: Filling the gap between 21st century trade and 20th century trade rules," WTO Staff Working Papers ERSD-2011-08, World Trade Organization (WTO), Economic Research and Statistics Division.
    10. Ornelas, Emanuel., 2012. "Preferential trade agreements and the labour market," ILO Working Papers 994691833402676, International Labour Organization.
    11. World Bank, 2011. "Republic of Burundi - Country Economic Memorandum (CEM) : The Challenge of Achieving Stable and Shared Growth," World Bank Other Operational Studies 2769, The World Bank.
    12. Vassilis Monastiriotis, 2008. "Quo Vadis Southeast Europe? EU Accession, Regional Cooperation and the need for a Balkan Development Strategy," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 10, Hellenic Observatory, LSE.
    13. Maria V. Sokolova, 2016. "Trade Re(Im)Balanced: The Role of Regional Trade Agreements," IHEID Working Papers 06-2016, Economics Section, The Graduate Institute of International Studies.
    14. Ben Zissimos, 2011. "Why are Trade Agreements Regional?," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 32-45, February.
    15. Ng, Francis & Yeats, Alexander, 2003. "Major trade trends in East Asia : what are their implications for regional cooperation and growth," Policy Research Working Paper Series 3084, The World Bank.
    16. Cheong, Juyoung & Kwak, Do Won & Tang, Kam Ki, 2015. "Heterogeneous Effects of Preferential Trade Agreements: How does Partner Similarity Matter?," World Development, Elsevier, vol. 66(C), pages 222-236.
    17. Ben Li & Penglong Zhang, 2016. "International Geopolitics," Boston College Working Papers in Economics 909, Boston College Department of Economics, revised 06 Feb 2017.
    18. Jaime MELO DE, 2005. "Regionalism and Developing Countries: A Primer," Working Papers 200510, CERDI.
    19. Amber, Fatima & Muhammad, Shahbaz & Faridul, Islam, 2012. "Nexus of trade, investment and poverty: evidence from Pakistan," MPRA Paper 39068, University Library of Munich, Germany, revised 20 May 2012.
    20. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, Elsevier.
    21. Khadan, Jeetendra & Hosein, Roger, 2013. "New Empirical Insights into the “Natural Trading Partner” Hypothesis for CARICOM Countries," MPRA Paper 50493, University Library of Munich, Germany.
    22. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade 0503003, EconWPA.
    23. Nuno Limão, 2016. "Preferential Trade Agreements," NBER Working Papers 22138, National Bureau of Economic Research, Inc.
    24. G. Schwartz, 2000. "Non-Enforceability of Trade Treaties and the Most-Favored Nation Clause: A Game Theoretic Analysis of Investment Distortions," Princeton Economic Theory Papers 00s17, Economics Department, Princeton University.

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