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Heterogeneous effects of preferential trade agreements: How does partner similarity matter?

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Abstract

This paper empirically examines whether and how similarity in country characteristics affects the changes in trade flows amongst member countries under a preferential trade agreement (PTA). It demonstrates that accounting for similarity in size, income and loca- tion of member countries is important in obtaining unbiased estimates of the trade cre- ation effect of PTAs. Using both a nonparametric stratification and a parametric interaction term approach, we obtain consistent results that the more similar the member countries are in terms of size, income or location, the larger the level and the proportion increase in intra-bloc trade under a PTA. Extensive sensitivity analyses that account for potential biases due to self-selection of trade, the extensive margin of trade and omission of trade diversion variables confirm the robustness of our results.

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  • Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2013. "Heterogeneous effects of preferential trade agreements: How does partner similarity matter?," Discussion Papers Series 490, School of Economics, University of Queensland, Australia.
  • Handle: RePEc:qld:uq2004:490
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    Cited by:

    1. Cheong, Juyoung & Kwak, Do Won & Tang, Kam Ki, 2018. "The trade effects of tariffs and non-tariff changes of preferential trade agreements," Economic Modelling, Elsevier, vol. 70(C), pages 370-382.
    2. repec:spr:weltar:v:153:y:2017:i:4:d:10.1007_s10290-017-0287-z is not listed on IDEAS
    3. Rod Falvey & Neil Foster-McGregor, 2017. "Heterogeneous effects of bilateral investment treaties," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(4), pages 631-656, November.
    4. Demir, Firat, 2016. "Effects of FDI Flows on Institutional Development: Does It Matter Where the Investors are from?," World Development, Elsevier, vol. 78(C), pages 341-359.
    5. Tinatin Akhvlediani & Katarzyna Śledziewska, . "The Impacts of Common Commercial Policy on Export Performances of Visegrad Countries," Prague Economic Papers, University of Economics, Prague, vol. 0, pages 1-16.
    6. Falvey, Rod & Foster-McGregor, Neil, 2017. "On the relationship between the breadth of PTAs and trade flows," MERIT Working Papers 038, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    7. Tinatin Akhvlediani & Katarzyna Śledziewska, 2017. "The Impacts of Common Commercial Policy on Export Performances of Visegrad Countries," Prague Economic Papers, University of Economics, Prague, vol. 2017(1), pages 3-18.

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