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On the Trade-diversion Effects of Free Trade Agreements

Author

Listed:
  • Dai, Mian

    () (Drexel University)

  • Yotov, Yoto

    () (Drexel University)

  • Zylkin, Thomas

    () (Drexel University)

Abstract

Standard trade theory suggests that Free Trade Agreements (FTAs) could disrupt trade between members and non-members. However, the trade diversion effects of FTAs have not been thoroughly examined empirically. Using a novel empirical approach, we confirm that FTAs that entered into force during the 1990s diverted trade away from non-member countries. Interestingly, we find that diversion from internal trade due to FTAs was significantly stronger than diversion from external trade.

Suggested Citation

  • Dai, Mian & Yotov, Yoto & Zylkin, Thomas, 2013. "On the Trade-diversion Effects of Free Trade Agreements," School of Economics Working Paper Series 2013-3, LeBow College of Business, Drexel University, revised 15 Sep 2014.
  • Handle: RePEc:ris:drxlwp:2013_003
    as

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    References listed on IDEAS

    as
    1. Anderson, James E. & Yotov, Yoto V., 2016. "Terms of trade and global efficiency effects of free trade agreements, 1990–2002," Journal of International Economics, Elsevier, vol. 99(C), pages 279-298.
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    5. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
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    Cited by:

    1. Gabriel Felbermayr & Marina Steininger & Erdal Yalcin, 2017. "Konsequenzen einer protektionistischen Handelspolitik der USA," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 89, June.
    2. Chen, Natalie & Novy, Dennis, 2017. "Currency unions, trade and heterogeneity," LSE Research Online Documents on Economics 88487, London School of Economics and Political Science, LSE Library.
    3. Sorgho, Zakaria, 2015. "RTAs' Proliferation and Trade-Diversion Effects: Evidence of the "Spaghetti Bowl" Phenomenon," Working Papers 206223, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).
    4. Larch, Mario & Monteiro, José-Antonio & Piermartini, Roberta & Yotov, Yoto, 2019. "On the Effects of GATT/WTO Membership on Trade: They are Positive and Large After All," School of Economics Working Paper Series 2019-4, LeBow College of Business, Drexel University.
    5. Ingo Borchert & Yoto V. Yotov, 2016. "Distance, Globalization, and International Trade," CESifo Working Paper Series 6275, CESifo Group Munich.
    6. Kern, Milena & Paetzold, Joerg & Winner, Hannes, 2018. "Cutting Red Tape for Trade in Services," Working Papers in Economics 2018-9, University of Salzburg.
    7. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    8. Michelle R. Garfinkel & Constantinos Syropoulos & Yoto V. Yotov, 2019. "Arming in the Global Economy: The Importance of Trade with Enemies and Friends," CESifo Working Paper Series 7500, CESifo Group Munich.
    9. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    10. Lionel Gérard Fontagné & Gianluca Santoni, 2018. "GVCs and the Endogenous Geography of RTAs," CESifo Working Paper Series 6980, CESifo Group Munich.
    11. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    12. Lionel Fontagné & Gianluca Santoni, 2018. "GVCs and the Endogenous Geography of RTAs
      [Mondialisation des chaînes de valeur et la géographie endogène des accords commerciaux régionaux]
      ," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01763563, HAL.
    13. Maria V. Sokolova, 2016. "Trade Re(Im)Balanced: The Role of Regional Trade Agreements," IHEID Working Papers 06-2016, Economics Section, The Graduate Institute of International Studies.
    14. Piermartini, Roberta & Yotov, Yoto, 2016. "Estimating Trade Policy Effects with Structural Gravity," School of Economics Working Paper Series 2016-10, LeBow College of Business, Drexel University.
    15. Erdal Yalcin & Marina Steininger, 2018. "Weltweite ökonomische Folgen einer zunehmend protektionistischen US-Handelspolitik," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(04), pages 30-38, February.
    16. Connell, William & Simons, Wouter & Vandenbussche, Hylke, 2018. "The cost of non-TTIP: A Global Value Chain Approach," CEPR Discussion Papers 12705, C.E.P.R. Discussion Papers.
    17. Frank, Jonas, 2018. "The effect of culture on trade over time: New evidence from the GLOBE data set," Hohenheim Discussion Papers in Business, Economics and Social Sciences 18-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    18. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2017. "Gravity, Distance, and International Trade," CESifo Working Paper Series 6357, CESifo Group Munich.
    19. Borchert, Ingo & Yotov, Yoto V., 2017. "Distance, globalization, and international trade," Economics Letters, Elsevier, vol. 153(C), pages 32-38.
    20. Herman, Peter & Ahmed, Lesley, 2018. "Do Canadian Wheat Grades Weight Down Trade? A Gravity Analysis," 2018 Annual Meeting, August 5-7, Washington, D.C. 274274, Agricultural and Applied Economics Association.
    21. Hayakawa, Kazunobu & Kimura, Fukunari & Laksanapanyakul, Nuttawut, 2016. "Firm-level trade creation and diversion of regional trade agreements in Thailand," IDE Discussion Papers 621, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    22. Sorgho, Zakaria, 2014. "RTAs’ Proliferation and Trade-diversion effects: Evidence of the “Spaghetti Bowl” Phenomenon," MPRA Paper 60503, University Library of Munich, Germany.
    23. Gabriel Felbermayr & Jasmin Katrin Gröschl & Marina Steininger & Gabriel J. Felbermayr, 2018. "Quantifying Brexit: From Ex Post to Ex Ante Using Structural Gravity," CESifo Working Paper Series 7357, CESifo Group Munich.
    24. Scott L. Baier & Jeffrey H. Bergstrand & Matthew W. Clance, 2015. "Heterogeneous Economic Integration Agreement Effects," CESifo Working Paper Series 5488, CESifo Group Munich.
    25. Frank, Jonas, 2018. "The effects of economic sanctions on trade: New evidence from a panel PPML gravity approach," Hohenheim Discussion Papers in Business, Economics and Social Sciences 17-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.

    More about this item

    Keywords

    International Trade; Gravity; Free Trade Agreements; Trade Diversion;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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