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Beyond Trade Creation: Free Trade Agreements and Trade Disputes

Author

Listed:
  • Tan LI

    (Faculty of Business and Economics, The University of Hong Kong)

  • Larry D. QIU

    (Faculty of Business and Economics, The University of Hong Kong)

Abstract

This paper investigates the effects of the formation of free trade agreements (FTAs) on trade disputes. We construct a unique and comprehensive dataset on inter-country trade disputes from 1995 to 2007. The dataset covers 110 countries and 1130 trade disputes. We find that the incidences of trade disputes between two countries are positively associated with economic size, economic growth, and trade shares, thereby lending partial support to the “capacity hypothesis” in the dispute literature. More importantly, we obtain that FTAs between two countries reduces the occurrences of trade disputes between them. We also find that FTAs relying on the WTO dispute settlement mechanism further reduce trade disputes between their members compared to FTAs without provisions on trade dispute settlement. By contrast, the dispute-reducing effect is mitigated in FTAs which have their own dispute settlement mechanisms. The main results are robust to the control for possible measurement error and endogeneity problem.

Suggested Citation

  • Tan LI & Larry D. QIU, 2015. "Beyond Trade Creation: Free Trade Agreements and Trade Disputes," Working Papers DP-2015-28, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2015-28
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    References listed on IDEAS

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    Cited by:

    1. Yanyun Li & Faqin Lin, 2022. "Beyond tariff evasion: bypass effect of FTAs to circumvent technical barriers," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(4), pages 1085-1105, November.
    2. Louise Johannesson & Petros C. Mavroidis, 2016. "The WTO Dispute Settlement System 1995-2016: A Data Set and its Descriptive Statistics," RSCAS Working Papers 2016/72, European University Institute.
    3. Johannesson, Louise & Mavroidis, Petros C., 2017. "The WTO Dispute Settlement System 1995-2015: A Data Set and its Descriptive Statistics," Working Paper Series 1148, Research Institute of Industrial Economics.

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    More about this item

    Keywords

    Trade disputes; Trade conflicts; Disputes settlement; WTO; FTA;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

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