IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/23507.html
   My bibliography  Save this paper

Third-Country Effects on the Formation of Free Trade Agreements

Author

Listed:
  • Chen, Maggie
  • Joshi, Sumit

Abstract

The recent proliferation of free trade agreements (FTAs) has resulted in an increasingly complex network of preferential trading relationships. The economics literature has generally examined the formation of FTAs as a function of the participating 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

  • Chen, Maggie & Joshi, Sumit, 2010. "Third-Country Effects on the Formation of Free Trade Agreements," MPRA Paper 23507, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:23507
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/23507/1/MPRA_paper_23507.pdf
    File Function: original version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eric W. Bond & Raymond G. Riezman & Constantinos Syropoulos, 2013. "A strategic and welfare theoretic analysis of free trade areas," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 8, pages 101-127 World Scientific Publishing Co. Pte. Ltd..
    2. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
    3. Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July.
    4. Donald R. Davis & David E. Weinstein, 2001. "An Account of Global Factor Trade," American Economic Review, American Economic Association, vol. 91(5), pages 1423-1453, December.
    5. Caroline Freund, 2000. "Different Paths to Free Trade: The Gains from Regionalism," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1317-1341.
    6. Sang-Seung, Yi, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good," Journal of International Economics, Elsevier, vol. 41(1-2), pages 153-177, August.
    7. Aghion, Philippe & Antras, Pol & Helpman, Elhanan, 2007. "Negotiating free trade," Journal of International Economics, Elsevier, vol. 73(1), pages 1-30, September.
    8. Keith E. Maskus & Shuichiro Nishioka, 2009. "Development-related biases in factor productivities and the HOV model of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 519-553, May.
    9. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-987, December.
    10. Scott L. Baier & Jeffrey H. Bergstrand & Peter Egger, 2007. "The New Regionalism: Causes and Consequences," Economie Internationale, CEPII research center, issue 109, pages 9-29.
    11. Chen, Maggie Xiaoyang & Joshi, Sumit, 2010. "Third-country effects on the formation of free trade agreements," Journal of International Economics, Elsevier, vol. 82(2), pages 238-248, November.
    12. Magee Christopher S, 2003. "Endogenous Preferential Trade Agreements: An Empirical Analysis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-19, December.
    13. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
    14. Ornelas, Emanuel, 2005. "Trade creating free trade areas and the undermining of multilateralism," European Economic Review, Elsevier, vol. 49(7), pages 1717-1735, October.
    15. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
    16. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
    17. Sanjeev Goyal & Sumit Joshi, 2006. "Bilateralism And Free Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 749-778, August.
    18. 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.
    19. Bagwell, Kyle & Staiger, Robert W., 2004. "Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO," Journal of International Economics, Elsevier, vol. 63(1), pages 1-29, May.
    20. Kamal Saggi, 2006. "Preferential Trade Agreements And Multilateral Tariff Cooperation ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 29-57, February.
    21. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bergstrand, Jeffrey H. & Egger, Peter, 2013. "What determines BITs?," Journal of International Economics, Elsevier, vol. 90(1), pages 107-122.
    2. repec:bla:worlde:v:40:y:2017:i:10:p:2032-2055 is not listed on IDEAS
    3. Chen, Maggie Xiaoyang & Joshi, Sumit, 2010. "Third-country effects on the formation of free trade agreements," Journal of International Economics, Elsevier, vol. 82(2), pages 238-248, November.
    4. Gianluca Orefice, 2015. "International migration and trade agreements: The new role of PTAs," Canadian Journal of Economics, Canadian Economics Association, vol. 48(1), pages 310-334, February.
    5. Willert, Bianca, 2017. "How intermediates trade affects the formation of free trade agreements: A study analyzing pairwise trade flows of 70 countries," Thuenen-Series of Applied Economic Theory 147, University of Rostock, Institute of Economics.
    6. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2015. "Can Trade Agreements Curtail Trade Creation and Prevent Trade Diversion?," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 221-238, May.
    7. Osnago,Alberto & Rocha,Nadia & Ruta,Michele, 2015. "Deep trade agreements and vertical FDI : the devil is in the details," Policy Research Working Paper Series 7464, The World Bank.
    8. Lake, James & Yildiz, Halis M., 2016. "On the different geographic characteristics of Free Trade Agreements and Customs Unions," Journal of International Economics, Elsevier, vol. 103(C), pages 213-233.
    9. Angela Abbate & Luca De Benedictis & Giorgio Fagiolo & Lucia Tajoli, 2012. "The International Trade Network in Space and Time," LEM Papers Series 2012/17, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    10. Denise Eby Konan & Keith E. Maskus, 2012. "Preferential Trade and Welfare with Differentiated Products," Review of International Economics, Wiley Blackwell, vol. 20(5), pages 884-892, November.
    11. Katerina Gradeva & Dany Jaimovich, 2014. "Multilateral determinants of regionalism revisited," The Review of International Organizations, Springer, vol. 9(2), pages 163-203, June.
    12. Scott L. Baier & Jeffrey H. Bergstrand & Ronald Mariutto, 2014. "Economic Determinants of Free Trade Agreements Revisited: Distinguishing Sources of Interdependence," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 31-58, February.
    13. James Lake, 2017. "Free Trade Agreements As Dynamic Farsighted Networks," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 31-50, January.
    14. Tan LI & Larry D. QIU, 2015. "Beyond Trade Creation: Free Trade Agreements and Trade Disputes," Working Papers DP-2015-28, Economic Research Institute for ASEAN and East Asia (ERIA).
    15. Hiroshi Daisaka & Taiji Furusawa, 2014. "Dynamic Free Trade Networks: Some Numerical Results," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 469-487, August.
    16. Carlo Piccardi & Lucia Tajoli, 2015. "Are Preferential Agreements Significant for the World Trade Structure? A Network Community Analysis," Kyklos, Wiley Blackwell, vol. 68(2), pages 220-239, May.

    More about this item

    Keywords

    free trade agreements; third-country effect; loss sharing; concession erosion;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:23507. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.