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What Drives Regional Trade Agreements that Work?

Economists have recently begun trying to explain that pattern of Regional Trade Agreement (RTA) formation around the world. This paper adds to the developing literature by taking into account the fact that many of the RTAs signed are not effectively implemented. The analysis proceeds in two steps: the gravity model is used to establish which RTAs are effectively implemented, in the sense that they positively and significantly increase trade flows between member countries compared to the flows predicted by the gravity model; second a hypothesis is tested about the pattern of effective RTAs – that successful RTAs are found between pairs of countries which send a large share of their exports to each other’s markets. Convincing evidence is found to support this hypothesis, including evidence that export interest from one partner alone does not improve the probability of an effective RTA.

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File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP07-2005.pdf
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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 07-2005.

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Length: 49
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:gii:giihei:heiwp07-2005
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  1. Alberto Alesina & Robert Barro & Silvana Tenreyro, 2002. "Optimal Currency Areas," Harvard Institute of Economic Research Working Papers 1958, Harvard - Institute of Economic Research.
    • Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356 National Bureau of Economic Research, Inc.
  2. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
  3. Susanna Thede, 2005. "Determinants of Bilateral Trade Protection," The World Economy, Wiley Blackwell, vol. 28(3), pages 313-328, 03.
  4. Rose, Andrew K, 2003. "Which International Institutions Promote International Trade?," CEPR Discussion Papers 3764, C.E.P.R. Discussion Papers.
  5. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
  6. Silvana Tenreyro & Robert J. Barro, 2002. "Economic effects of currency unions," Working Papers 02-4, Federal Reserve Bank of Boston.
  7. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  8. Richard E. Baldwin, 1997. "The Causes of Regionalism," The World Economy, Wiley Blackwell, vol. 20(7), pages 865-888, November.
  9. Soloaga, Isidro & Winters, L. Alan, 1999. "Regionalism in the Nineties: What Effect on Trade?," CEPR Discussion Papers 2183, C.E.P.R. Discussion Papers.
  10. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
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