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Expanding RTAs, Trade Flows, and the Multinational Enterprise

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  • Michele Fratianni

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Chang Hoon Oh

    (Faculty of Business, Brock University)

Abstract

We test the relationship between the size of regional trade agreements (RTA) and openness by using a gravity equation with multilateral trade factors. Our sample includes eleven RTAs, seven with constant membership and four with expanding membership. Regional trade bias declines with the size of the club; three of the four expanding RTAs have already surpassed their ‘optimal’ size. We also explore the link between openness of the RTA and the geographic strategy of the multinational enterprise. We find strong evidence in favor of the regionalization strategy, which has been enhanced by the presence of RTAs.

Suggested Citation

  • Michele Fratianni & Chang Hoon Oh, 2008. "Expanding RTAs, Trade Flows, and the Multinational Enterprise," Working Papers 2008-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2008-02
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    More about this item

    Keywords

    Trade Blocks; Regional Integration; Multinational Enterprises (MNEs); Plurilateral RTAs; Trade Creation; Trade Diversion;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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