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Do Free Trade Agreements Enhance the Transmission of Shocks Across Countries?

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  • César Calderón

Abstract

World Trade has experienced an increased integration over the last 15 years. More than half of world trade currently takes place under actual or future trading blocks. Our main goal is to test whether free trade or regional integration agreements (FTA or RIA, respectively) have strengthened the trade channel of international transmission of business cycles. With annual information for 147 countries over the 1960-99 period, we conduct our analysis for a panel data of country pairs (33676 country pairs), and we find the following results: (i) Higher trade intensity between two countries generates a stronger cycle synchronization. (ii) This impact is even stronger among country pairs with a free trade agreement. (iii) The impact of trade intensity on cycle synchronization is stronger among industrial than among developing country pairs. (iv) The impact within each group of country pairs is higher for the ones engaged in FTAs. (v) Economic effects of higher trade intensity in the presence of FTAs are stronger during the 1990s.

Suggested Citation

  • César Calderón, 2003. "Do Free Trade Agreements Enhance the Transmission of Shocks Across Countries?," Working Papers Central Bank of Chile 213, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:213
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_213.pdf
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    References listed on IDEAS

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    1. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864, Elsevier.
    2. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3.
    3. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
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    Cited by:

    1. M. Ayhan Kose & Guy M. Meredith & Christopher M. Towe, 2005. "How Has NAFTA Affected the Mexican Economy? Review and Evidence," Springer Books, in: Rolf J. Langhammer & Lúcio Vinhas Souza (ed.), Monetary Policy and Macroeconomic Stabilization in Latin America, pages 35-81, Springer.
    2. Norbert Fiess, 2007. "Business Cycle Synchronization and Regional Integration: A Case Study for Central America," The World Bank Economic Review, World Bank, vol. 21(1), pages 49-72.
    3. Kose, M. Ayhan & Rebucci, Alessandro, 2005. "How might CAFTA change macroeconomic fluctuations in Central America?: Lessons from NAFTA," Journal of Asian Economics, Elsevier, vol. 16(1), pages 77-104, February.
    4. Nikolaos Antonakakis & Gabriele Tondl, 2011. "Has Integration Promoted Business Cycle Synchronization in the Enlarged EU?," FIW Working Paper series 075, FIW.

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