Proliferating Regional Trade Arrangements: Why and Whither?

This paper investigates why regional trade arrangements (RTAs) are proliferating extensively and how the effects of multiple RTAs, by interacting with each other, evolve over time. Our empirical analysis, based on an extended gravity model utilising a large panel dataset of 175 countries from 1948 to 1999, shows that RTAs on average increase global trade by raising intra‐bloc trade without damaging extra‐bloc trade. The net trade effects, however, heavily depend on the types of RTA strategic evolution over time, which we categorise as ‘expansionary’ RTAs, ‘duplicate’ RTAs or ‘overlapping’ RTAs. We find that countries excluded from an RTA can benefit more from duplicating a separate RTA than from joining an existing RTA. This result explains why the number of bilateral trade blocs, rather than the membership size of existing RTAs, is currently exploding. We also find that the net trade‐creating effects of RTAs are substantially lower for countries participating in overlapping RTAs. This result suggests that it is less likely that the currently proliferating RTAs will completely merge and lead the world economy to global free trade. Our empirical results are robust to controlling for the characteristics of countries that may influence the impact of RTAs.     

Formation of interdependent regional trade agreements and production networks

Production networks (PNs) can be defined as a determinant of trade partnership. Deepening PNs may generate positive welfare effects and lead to a proliferation in the formation of interdependent regional trade agreements (RTAs). This paper theoretically develops the link between PNs and the formation of RTAs and empirically investigates the link by applying a qualitative choice model estimation methodology (probit) with panel data that covers bilateral country‐pairs among 147 countries between 2000 and 2010. We find that the RTA formation has been strongly driven by deepening PNs between members as well as with third countries. We also find that production network‐driven RTA interdependence is member specific.     

Revisiting the effect of regional integration on African trade: evidence from meta-analysis and gravity model

Two main shortcomings flaw the estimation of gravity model in previous studies that examined the trade-creating effects of African Regional Trade Agreements (RTAs). First, these studies fail to account for the multilateral resistance term. This omission makes the estimates from standard gravity model bias and inconsistent. Second, there is a significant proportion of zero trade flows, however, these studies also fail to account for them properly. They use either the Tobit model or replace zero flows with arbitrary small values. Apart from these problems, they also exhibit considerable heterogeneity in the RTA effects on trade. In this paper, a meta-analysis of previous empirical studies is conducted to derive a combined effect size and also to explain the heterogeneity. In addition, I use the gravity model to compare the trade-creating effect of the main African RTAs. Using the gravity model, I compare the estimation methods of previous studies to the Poisson pseudo-maximum-likelihood estimator that tackles the zero flows. From the meta-analysis, I find a general positive effect of African RTAs of about 27%–32%. A comparative assessment of the RTAs using gravity model shows a striking heterogeneity.     

Supplementary Trade Benefits of Multi-Memberships in African Regional Trade Agreements

ABSTRACT

Few papers have investigated the trade effects of multi-memberships of Regional Trade Agreements (RTAs), but none has done this in an Africa-wide manner. This paper investigates the supplementary trade effects of multi-memberships of RTAs after controlling for single-membership for all African RTAs. We use (1) overall number of RTAs by country pair; (2) dummies of number of RTAs; and (3) number of RTA memberships by countries within each RTA grouping, in a panel of 53 African countries from 1995 to 2014. The gravity models are estimated with the Eicker-White robust covariance Poisson Pseudo-Maximum Likelihood (PPML) which is superior to previous ones. All the estimates concur that multi-memberships have significant additional intra-Africa trade benefits which increase with the number of memberships. The implication is that although RTAs enhance trade in Africa, it is only a second-best to a complete integration of the African continent. A complete dismantling of politically induced trade barriers and even inter-RTA boundaries within Africa will yield significant intra-Africa trade benefits. The results support the ongoing efforts in Africa in pursuing a “one Africa” vision. Such efforts have to transcend regional integration and pursue the ideal of an integrated Africa for the full trade benefits to be realized.     

Do deeper regional trade agreements enhance international technology spillovers?

We examine whether regional trade agreements (RTAs) enhance international technology spillovers using a panel of patent citation data for 114 countries/regions for the period 1991–2007. We use patent citations as a proxy for technology spillovers. The focus of this study is on whether the depth of regional integration matters for technology spillovers among member countries/regions of RTAs. The depth of integration is measured by the extent to which an RTA includes legal obligations outside the current mandate of the World Trade Organization. We find that the depth of integration actually influences technology spillovers and that a deeper integration in a broad sense has a greater impact on technology spillovers than do technology‐related provisions.     

全球价值链分工下区域贸易协定能降低服务贸易成本吗

全球价值链分工下服务的作用愈发凸显,服务贸易的新形式丰富了区域贸易协定影响服务贸易成本的渠道。本文从中间投入和最终需求两个维度分析了区域贸易协定对不同类型服务贸易成本的影响效果和机制。结果表明:单纯签订区域贸易协定对服务贸易成本的抑制作用并不显著,提高区域贸易协定的深度将显著降低服务贸易成本。区域贸易协定可以显著降低中间投入服务贸易成本,对最终需求服务贸易成本的抑制效应不显著。区域贸易协定的服务贸易自由化效果存在非对称性,北北型区域贸易协定对服务贸易成本的抑制效应强于南北型。北北型区域贸易协定可以通过减少监管分歧和货物贸易自由化效果外溢两条途径降低服务贸易成本,南北型区域贸易协定则仅可以通过货物贸易自由化的外溢效应来降低服务贸易成本。因此,中国应积极与发达国家开展高质量区域贸易协定谈判,通过提高区域贸易协定深度充分发挥其服务贸易自由化效果。     

RTAs' Proliferation and Trade‐diversion Effects: Evidence of the ‘Spaghetti Bowl’ Phenomenon

This paper investigates the trade‐diversion effects of regional trade agreements (RTAs), so‐called spaghetti bowl phenomenon (SBP), in multilateral trade. The SBP is due to the proliferation of RTAs. Thus, I investigate the relationship between the number of RTAs concluded by a country and the additional trade value attributed to a RTA. Using bilateral trade data in a sample of 119 countries, from 1995 to 2012, my main finding reveals a negative trade effect between them, confirming the existence of SBP in multilateral trade. However, results could not conclude the evidence of a negative effect of overlapping RTAs, involving the existence of SBP, within North–North, North–South or South–South trade. But, the additional trade value attributed to a RTA concluded with EU countries or US seems to confirm significantly a trade‐diversion effect because of the number of RTAs signed by these countries.     

In Search of Optimised Regional Trade Agreements and Applications to East Asia

We quantitatively analyse the trade effects of enhanced trade facilitation with extended gravity equations. Our findings confirm that RTAs comprised of countries equipped with better trade facilitation are more likely to be trade‐creating, less likely to be trade‐diverting, and are thus more likely to lead the world economy toward global free trade. We also find that (i) the traditional gains from shallow integration through eliminating tariff barriers will be greater for South‐South RTAs in East Asia such as an ASEAN‐China RTA, provided that the tariff‐reducing schedule is strictly fulfilled, (ii) the gains from deeper integration through enhancing trade facilitation will be greater for North‐North RTAs in East Asia such as a Japan‐Korea RTA, and (iii) the gains from a combined trade liberalisation strategy through tariff reductions and enhanced trade facilitation will be greater for North‐South RTAs in East Asia such as a China‐Korea and an ASEAN+3 RTA.     

贸易成本与技术差异:南南和南北协定对FDI的影响

由于贸易成本不同和技术差异,不同国家组成区域贸易协定(RTA)后,FDI流入数量和质量都存在差异。以知识-资本模型为理论框架,本文对OECD国家和东盟国家的FDI数据进行回归分析,研究表明南北型RTA比南南型RTA能带来更多的FDI,发展中国家进行区域一体化时最优选择是和发达国家缔结贸易协定。     

Regional Trade Agreements and the Pattern of Trade: A Networks Approach

This paper uses a complex network approach for the analysis trade effects from regional trade agreements on world trade flows. We use bilateral trade data to compute the network community structure for every year between 1970 and 2000. We compare this to null community structures that emerge from various models based on regional and geographical classifications, the implementation of RTA's and gravity models of trade. Our results show that RTA formation appears to have a cyclical pattern on the world trade network community structure. We document periods where bilateral trade flows and the structure of the world trade network are consistent with those predicted by formation of RTAs. These cycles occur in 1980–86 and 1990–96. At the same time, we document periods in which the pattern in the world trade network is not explained by RTA formation. Two periods, 1986–90 and 1997–2000, show a pattern of bilateral trade flows that moves away from the prediction that results from assuming RTA formation as the driving force in the determination of the world trade network structure. Factors contributing to the latter parts of the cycle during our sample period include formation of regional trade networks in East Asia that account for a significant portion of world trade but are not formalised by RTAs in force.     

The value of market access and national treatment commitments in services trade agreements

This paper looks at market access and national treatment commitments for services in the General Agreement on Trade in Services (GATS) and in 95 regional trade agreements (RTAs) involving the countries that are covered in the OECD Services Trade Restrictiveness Index (STRI). The objective is to quantify the impact of legal bindings on trade in services that result from a reduction in the uncertainty faced by exporters. Bilateral bindings indices are created for five broad service sectors (professional services, computer services, telecoms, financial services and transport services). They indicate how close the sector is from a fully bound regime with no possibility to introduce any new trade barrier, by comparing commitments with the actual trade regime. These bilateral indices are then tested over the period 2000–2014 in a structural gravity model. Despite differences across sectors, the results confirm that the legal bindings typically found in services trade agreements tend to have a positive impact on exports even if no actual liberalisation takes place.     

Is Regionalism an Increasing Feature of the World Economy?

Measuring the importance of regionalism in international trade is desirable but difficult. The number of regional trade agreements (RTAs) reported to the WTO or the proportion of world trade which is between countries in an RTA are frequently cited as evidence that regionalism is growing at an accelerating rate. This paper questions whether RTAs really are as important as the headline numbers suggest, or whether they just occupy an excessively large part of policymakers’ and economic journalists’ time. The main contributions are to analyse the number of RTAs and the share of world trade criteria in order to show why both are meaningless in the current world economy. The paper concludes that, although the extent of regionalism is difficult to measure and the desirability of individual RTAs is difficult to assess, the threat to the multilateral trading system does not appear to be as large as is often reported, because the long‐term dynamics of RTAs lead either to state formation, which is important but rare, or to ineffectiveness, which is the fate of the vast majority of RTAs.     

Are regional trading arrangements trade creating?: An application of extreme bounds analysis

In this study, we use extreme bounds analysis to test the robustness of the hypothesis that regional trading arrangements (RTAs) are trade creating. Extreme bounds analysis provides a more rigorous test of specification uncertainty than traditional econometric theory by incorporating prior information and using a systematic approach to testing the fragility of coefficient estimates. The results show that the trade creation effect of most RTAs is fragile. Using a least squares estimator where all weight is attached to the sampling distribution, eight or more of the twelve RTAs considered are found to be trade creating. When the relative weight in the estimation is shifted from the sampling to the prior distribution, the number of RTAs that are trade creating falls to six at the 95 percent likelihood ellipsoid. Moreover, when we specify that not all RTAs are trade creating, four RTAs increase trade at the 95 percent likelihood ellipsoid. At the extreme bounds, when all weight is attached to the prior distribution, none of the RTAs are found to be trade creating. As a result, we conclude that the pervasive trade creation effect found in the literature reflects not the information content of the data but rather the unacknowledged beliefs of the researchers.     

Trade in tourism services: Explaining tourism trade and the impact of the general agreement on trade in services on the gains from trade

The article addresses two questions related with tourism as a service trade. Can tourism be explained as other export activities? Does service liberalisation have a positive or negative impact on tourism receipts in destination countries? Previous research has either focused on the demand side factors (i.e. factors of demand in the origin countries) or on tourism as a long-run factor of economic growth. The research shows that a complementary perspective such as that offered by trade in a supply side perspective can render additional insights towards understanding tourism. This approach can explain why countries have absolute and comparative advantage. Another finding is that tourism as an export can be explained by some of the same destination factors that explain other service exports. Using different panel estimators the importance of supply side factors that are to some extent exclusive to tourism are demonstrated: the general price competitiveness of the destination, tourism infrastructure and the provision of safety. The econometric models also confirm the relevance of other conventional explanatory factors of trade in services such as GDP per capita and internet usage. The last part of the article analyses the welfare gains from trade under the general agreement on trade in services (GATS). The revenue (tourism receipt) effect is decomposed into a volume (arrival) and price effect. Results suggest that liberalisers under the GATS gained especially from a volume effect with average higher growth rates in the number of arrivals. There is also found to be a positive effect on the average income earned per tourist from being a liberaliser.     

Overlapping free trade agreements and international trade: A network approach

In our work, we have analysed the effect of the hub‐and‐spoke nature of free trade agreements (FTA s) on trade. Contrary to previous analyses, we have considered the effects of the country's position in the FTA network on the bilateral trade of the hub country. We have conducted an in‐depth analysis of the global network of FTA s, focusing particularly on its evolution in the last 15 years. We have utilised a panel data set covering the period 1960–2010 to investigate the effects of the hub‐and‐spoke on trade. Our results show that the countries that are more connected to FTA s export more than those that are less involved, although not all the partner countries you can connect with are the same. An increase in the number of spokes that have no link between them has, on average, a negative effect on the trade of the hub, which indicates that signing FTA s with every country is not the optimal strategy for increasing trade. However, if we consider the way new FTA s change the relative position of a country, we can see that if new FTA s make the country more central or less constrained in the network, these new agreements have a strongly positive and significant pro‐trade effect.     

The trade facilitation impact of the Chinese diaspora

Using an enhanced data set on the population share of overseas Chinese in 1970 and 1990, this paper analyses the impact of the Chinese diaspora on facilitating China's bilateral trade during the period 1973–2013. Our findings suggest substantial trade creation effects resulting from the presence of ethnic Chinese in the trade partner population. Diaspora impacts on Chinese bilateral imports are in general higher than those found for exports. Coethnic networks play a larger role as long as the partner country does not have an RTA with China in place. Among export sectors, effects found were strongest for food, as well as for machinery and transport equipment. In regard to imports, coethnic networks matter mostly for raw materials, machinery and transport equipment, and chemicals.     

Trade-diverting free trade agreements,external tariffs,and feasibility

There has been a proliferation of preferential trade agreements within the last two decades. This paper analyzes the effects of free trade agreements (FTAs) on external tariffs in small economies where protection decisions are made politically. Our model determines tariff rates endogenously instead of assuming they are fixed during or after the formation of FTAs as commonly done in the literature. We show that when an FTA is established, the tariff rates that apply to non-members essentially decline. More importantly, we investigate the interaction between endogenous tariff determination and the feasibility of an FTA. We find that the expectation of tariff reductions under endogenous tariffs could make an otherwise feasible FTA if tariffs were fixed become infeasible. However, if domestic import-competing sectors are relatively smaller and the government places a significant weight on political contributions relative to social welfare, an FTA with endogenous tariffs may be more likely to be feasible than an FTA assumed to fix external tariffs.     

Trade law and trade flows

This paper develops and estimates a model to study the effect of improving the quality of commercial trade law on trade flows. We focus on improvements aimed to privately resolve disputes among trading partners: international commercial arbitration and conciliation. The main novelty of the model is to explicit the balance between the contractual quality of importer and exporter (contractual distance) in an environment with informational frictions (contractual noise). Using a structural gravity estimation with high-dimensional fixed effects, the main contribution of the empirical exercise is to confirm previous results and unravel new traits that align with our theoretical results. Arbitration has a moderate and positive effect on exports that increases (decreases) with the contractual quality of the exporter (importer) and the remoteness of markets. The effects of conciliation are similarly positive, but only for similar trading partners with high levels of income. Results also suggest both domestic trade law reform and international treaties have a positive effect on trade, with a stronger effect of the latter.     

Product quality,firm heterogeneity and trade liberalization

This paper develops a framework for studying the general equilibrium effects of endogenous quality upgrading, a new margin of trade, on the welfare impact of trade liberalization. The theoretical model introduces product quality differentiation amongst heterogeneous firms and focuses on supply-side determinants of international trade. Among other results, in general equilibrium, trade liberalization decreases the share of high-quality varieties in exports and the average productivity of exporters. These changes affect average export price in opposite ways. Nevertheless, trade liberalization in the quality-extended model increases consumers’ welfare by more than in the benchmark model.     

Do we need deeper trade agreements for GVCs or just a BIT?

The paper investigates two policies geared towards stimulating and shaping global value chains (GVCs), namely deep regional trade agreements (DRTAs) and bilateral investment treaties (BITs). In an augmented gravity model, we test the impact of both policies on a variety of trade in value added indicators. We find that both policies are likely to increase GVC trade, although their transmission channels differ. While backward linkages are stimulated through both BITs and DRTAs, forward linkages respond only to DRTAs. The estimates suggest that negotiating a DRTA with investment provisions has a higher impact on trade in value added than signing a shallow RTA and a separate BIT.