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Performance of Western Hemisphere Trading Blocs; A Cost-Corrected Gravity Approach

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  • Enzo Croce
  • V. Hugo Juan-Ramon
  • Feng Zhu

Abstract

We study the performance of the four Western Hemisphere trading blocs during the period 1978-2001. For the North American Free Trade Agreement (NAFTA), trade integration outweighed trade diversion; for MERCOSUR, increased integration and trade diversion went hand in hand; for the Central American Common Market (CACM) and the Andean Community, the evidence points to trade diversion only. We also find that trade among neighboring countries has increased since the early 1990s. The estimations are based on a nonlinear gravity equation that incorporates the hypothesis that exports create externalities that affect trade costs. This hypothesis might help reconcile the theoretical unitary income elasticity with most empirical findings of a non-unitary income elasticity in studies using the gravity equation.

Suggested Citation

  • Enzo Croce & V. Hugo Juan-Ramon & Feng Zhu, 2004. "Performance of Western Hemisphere Trading Blocs; A Cost-Corrected Gravity Approach," IMF Working Papers 04/109, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/109
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    13. repec:wsi:wschap:9789812815330_0001 is not listed on IDEAS
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    Cited by:

    1. Csilla, Lakatos & Lars, Nilsson, 2015. "The EU-Korea free trade agreement: Anticipation, trade policy uncertainty and impact," DG TRADE Chief Economist Notes 2015-2, Directorate General for Trade, European Commission.
    2. Csilla Lakatos & Lars Nilsson, 2017. "The EU-Korea FTA: anticipation, trade policy uncertainty and impact," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(1), pages 179-198, February.
    3. Florian Mölders & Ulrich Volz, 2011. "Trade creation and the status of FTAs: empirical evidence from East Asia," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(3), pages 429-456, September.
    4. repec:eee:forpol:v:90:y:2018:i:c:p:167-179 is not listed on IDEAS
    5. Jérôme TROTIGNON, 2009. "Les Effets Des Nouveaux Accords De Libre-Commerce En Amérique Latine," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 29, pages 31-48.
    6. Claudio Paiva, 2008. "Assessing protectionism and subsidies in agriculture-a gravity approach," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(5), pages 628-640.

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