The impact of North-South and South-South trade agreements on bilateral trade
Free trade agreements (FTAs) lead to a rise in bilateral trade even if the signatories include developing countries.� Furthermore, the percentage increase in bilateral trade is higher for South-South agreements than for North-South agreements.� The results are robust across a number of gravity model specifications in which we control for the endogeneity of FTAs (with bilateral fixed effects) and also take account of multilateral resistance in both estimation (with country-time fixed effects) and comparative statics (analytically).� Our analytical model shows that multilateral resistance dampens the impact of FTAs on trade by less in South-South agreements than in North-South agreements, which accentuates the difference implied by our gravity model coefficients, and that this difference gets larger as the number of signatories rises.� For example, allowing for lags and multilateral resistance, a four-country North-South agreement raises bilateral trade by 53% while the analogous South-South impact is 107%.
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