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Evaluating the trade effect of developing regional trade agreements : a semi-parametric approach

  • Coulibaly, Souleymane

Many recent papers have pointed to ambiguous trade effects of developing regional trade agreements (RTAs), calling for a reassessment of their economic merits. The author focuses on seven such agreements currently in force in Sub-Saharan Africa (ECOWAS and SADC), Asia (AFTA and SAPTA) and Latin America (CACM, CAN, and MERCOSUR), estimating their impacts on their members'trade flows. Instead of the usual dummy variables for RTAs, he proposes a variable taking into account the number of years of membership. He then combines a gravity model with kernel estimation techniques to capture the non-monotonic trade effects while imposing minimal structure on the model. The results indicate that except for SAPTA, these RTAs have had a positive impact on their members'intra-trade over the estimation period (1960-99). AFTA seems to be the most successful among them, with an estimated positive impact on its members'imports from the rest of the world (hence no trade diversion), but its impact on their exports to the rest of the world is rather limited. During its first 10 years of existence, ECOWAS appears to have had a positive impact on its members'imports from the rest of the world (hence no trade diversion), but this positive impact vanished over time. SAPTA's negative impact on its members'intra-trade is probably an implicit effect of the India-Pakistan tensions over the estimation period.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4220.

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Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:wbk:wbrwps:4220
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  1. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  2. Caroline L. Freund & John McLaren, 1999. "On the dynamics of trade diversion: evidence from four trade blocs," International Finance Discussion Papers 637, Board of Governors of the Federal Reserve System (U.S.).
  3. Philippa Dee & Jyothi Gali, 2003. "The Trade and Investment Effects of Preferential Trading Arrangements," NBER Working Papers 10160, National Bureau of Economic Research, Inc.
  5. Anne O. Krueger, 1999. "Trade Creation and Trade Diversion Under NAFTA," NBER Working Papers 7429, National Bureau of Economic Research, Inc.
  6. Carrere, Celine, 2006. "Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model," European Economic Review, Elsevier, vol. 50(2), pages 223-247, February.
  7. Robert J. R. Elliott & Kengo Ikemoto, 2004. "AFTA and the Asian Crisis: Help or Hindrance to ASEAN Intra-Regional Trade?," Asian Economic Journal, East Asian Economic Association, vol. 18(1), pages 1-23, 03.
  8. Rose, Andrew K, 2004. "Does the WTO Make Trade More Stable?," CEPR Discussion Papers 4246, C.E.P.R. Discussion Papers.
  9. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
  10. I-Hui Cheng & Howard J. Wall, 2004. "Controlling for heterogeneity in gravity models of trade and integration," Working Papers 1999-010, Federal Reserve Bank of St. Louis.
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