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Multilateralism versus Regionalism!?

  • Bernhard Herz
  • Marco Wagner

The well-known question whether regional trade agreements (RTAs) and the multilateral trading system (MTS) are "strangers, friends, or foes" (Bhagwati and Panagariya, 1996) has gained new importance with the widespread proliferation of RTAs in recent years. Based on an extensive data set which covers most of world trade over the past 60 years and about 240 regional trade agreements, we analyze the relationship between RTAs and the MTS by combining the gravity model framework with vector auto-regression analysis. Impulse-response-functions robustly suggest that multilateral trade liberalization responds in a signifcantly positive way to regional trade liberalization. We also find robust evidence that RTA liberalization Granger-causes GATT/WTO liberalization. Thus, our results indicate that RTAs do not undermine the MTS but serve as building blocs to multilateral trade liberalization.

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Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 089.

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Length: 38 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:bav:wpaper:089_herz
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