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Third-Country Effects on the Formation of Free Trade Agreements

Author

Listed:
  • Maggie Xiaoyang Chen

    (Department of Economics/Institute for International Economic Policy, George Washington University)

  • Sumit Joshi

    (Department of Economics, George Washington University)

Abstract

The recent proliferation of free trade agreements (FTAs) has resulted in an in- creasingly complex network of preferential trading relationships. The economics literature has generally examined the formation of FTAs as a function of the par- ticipating countries' economic characteristics alone. In this paper, we show both theoretically and empirically that the decision to enter into an FTA is also crucially dependent on the participating countries' existing FTA relationships with third countries. Accounting for the interdependence of FTAs helps to explain a significant fraction of FTA formations that would not otherwise be predicted by countries' economic characteristics.

Suggested Citation

  • Maggie Xiaoyang Chen & Sumit Joshi, 2008. "Third-Country Effects on the Formation of Free Trade Agreements," Working Papers 2008-16, The George Washington University, Institute for International Economic Policy.
    • Handle: RePEc:gwi:wpaper:2008-16
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    File URL: http://www.gwu.edu/~iiep/assets/docs/papers/Chen_IIEPWP2008-16.pdf
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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration

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