Do Customs Union Members Engage in More Bilateral Trade than Free‐Trade Agreement Members?

This paper provides the first empirical analysis directly comparing the effects of customs unions (CUs) and free‐trade agreements (FTAs) on members’ bilateral trade, while addressing the biases arising from log‐linearization of the gravity model and crucial time‐invariant unobservables. Since Fiorentino et al. (2007 ) question the popularity of CUs relative to FTAs, considering the latter to be more practical in the current trading climate, such a comparison seems especially relevant. While Baier and Bergstrand (2007 ) find an FTA to approximately double members’ bilateral trade after 10 years, the results of this paper find CUs to have had a much larger impact than FTAs.     

One Money,One Market: A Revised Benchmark

The introduction of the euro generated substantial interest in the impact of currency unions (CUs) on trade flows. Initial estimates suggested a tripling of trade, which gave rise to a literature in search of “more reasonable” CU effects. Theoretical derivations of the gravity model highlight, however that the CU literature neglects to control simultaneously for general equilibrium effects (multilateral resistance) and unobserved bilateral heterogeneity among trade partners. Once we introduce the appropriate controls, CU trade effects are shown to range around 50%. We also highlight that the practice of reporting average CU effects generates misleading results. The average effect is shown to be a composite of disparate individual CU effects ranging from 40% (euro) to about 100% (Central African franc).     

Moving to autarky,trade creation and home market effect: an exhaustive analysis of regional trade agreements in Africa

This article analyses the effects of Regional Trade Agreements (RTAs) on bilateral trade in Africa. A structural gravity equation is estimated over the period 1955–2014. The overall effect of RTAs on African trade is strong, but depending on the nature of the RTAs, there is a decreasing impact over time. While Economic Integration Agreements (EIAs) still favour trade in Africa, there was no trade creation coming from Free Trade Agreements between 1990 and 2014. However, the provisions of RTAs do not have a negative impact on trade: agreements that include behind-the-border policies do not significantly deter bilateral trade. To explain the declining impact of RTAs, we look at their redistributive impact between members states. There is no evidence that large countries disproportionally export diversified goods due to RTAs (no ‘home effect’). Countries with a good international network (‘hub effect’) benefited more than other countries of RTAs between 1955 and 1990 but this is however less true on the most recent period (1990–2014).     

Dynamic formation of preferential trade agreements: The role of flexibility

In practice, free trade agreements (FTAs) vastly outnumber customs unions (CUs). Nevertheless, the literature traditionally views CUs as optimal for members because CU members coordinate external tariffs. I show that a dynamic FTA flexibility benefit can help explain the prevalence of FTAs: individual FTA members have the flexibility to form their own future FTAs whereas CU members must jointly engage in future CU formation. I show how the relative prevalence of FTAs versus CUs depends on the structure of market size asymmetry across countries and use these predictions to shed some light on FTA versus CU formation in Europe and South America.     

Determinants of successful regional trade agreements

This paper investigates the determinants of the effectiveness of regional trade agreements (RTAs) in enhancing bilateral trade. Characteristics of both the country pair and other RTA members are found to significantly influence the trade creation effect of RTAs. However, North/North, North/South and South/South RTAs are found to have similar effects on trade.     

Reciprocal Trade Agreements in Gravity Models: A Meta-Analysis

The gravity model is a workhorse tool applicable in a wide range of empirical fields. It is regularly used to estimate the impact of reciprocal trade agreements (RTAs) on trade flows between partners. The studies report very different estimates since there is a significant difference in datasets, sample sizes, and independent variables. This paper combines, explains, and summarizes a large number of results using a meta-analysis approach. We provide pooled estimates, obtained from fixed and random effects models of the RTAs' effect size on bilateral trade: the hypothesis that there is no effect of RTAs on trade is robustly rejected at standard significance levels. The information collected on each estimate allows us to test the sensitivity of the results to alternative specifications and differences in the control variables considered, as well as the impact of the publication selection process.     

Regional Integration and Lobbying for Tariffs Against Nonmembers

We study the impact of regional trading arrangements (RIAs) on tariff policy toward nonmembers in a three-good, three-country political economy model. Comparing free-trade areas (FTAs) with and without rules of origin and customs unions (CUs) with varying degrees of economic and political integration, we show how increasingly deep integration can lead to rising protection against nonmember imports. Other differences between FTAs and CUs, like the extent of free-riding in a CU and any component of a CU's tariff designed to improve the members' terms of trade, are not explicitly accounted for. Nevertheless, the results suggest that FTAs are likely to welfare dominate CUs.     

Trade,conflict, and political integration: Explaining the heterogeneity of regional trade agreements

Many historians argue that the main goal of European trade integration was the preservation of peace. This paper investigates whether this reasoning is relevant for the EU and other regional trade agreements (RTAs). I provide empirical evidence that customs unions and common markets (deep RTAs) do reduce the probability of war between members. Partial scope and free trade agreements (shallow RTAs) however have no effect on war probabilities. Accordingly, international insecurity has a differential impact on incentives to create RTAs. Deep RTAs are signed between countries that are involved in many interstate disputes and that have low trade costs with the rest of the world, whereas the opposite is true for shallow RTAs.     

Choosing between multiple regional trade agreements: Evidence from Japan’s imports

Mega‐regional trade agreements (RTAs) are likely to overlap with other RTAs. When such overlaps occur, firms must choose the tariff rates from multiple RTAs. By employing data on Japan’s imports by tariff schemes, we investigate how RTA tariff rates affect firms’ decisions on tariff schemes when multiple RTAs exist. Our finding is that RTA utilization rates are higher when tariff rates for that RTA are lower (own effect) and tariff rates for alternative RTAs are higher (cross effect). We also found that the absolute magnitudes of own and cross effects are larger in bilateral and multilateral RTAs, respectively.     

The silent success of customs unions

Globally, 81 countries are now part of a customs union (CU), following the rapid proliferation of this type of trade agreement in past decades. Much of this growth has been driven by countries “upgrading” their links from a free trade agreement (FTA) to CU. At the same time, the rapid formation of new FTAs among countries that had no prior agreement in place has largely overshadowed this growth, making CUs the silent success of regional integration. Using the canonical regionalism model, augmented to allow for political bias towards firm interests, we investigate the endogenous choice of trade agreement. We show it is generally politically viable to move from FTA to CU, because such a move is rent‐creating; but for countries without a trade agreement in place, it may be optimal to form an FTA as a stepping stone to reduce the risk of political derailment. Importantly, forming a CU is consistent with member social welfare maximization: as long as trade with the rest of the world does not cease entirely, a CU leads to higher social welfare than either FTA or no agreement. These gains come at the expense of third‐country welfare. If past trends continue, one can expect more FTAs to be upgraded to CU with associated adverse consequences for outsiders.     

Migration and Regional Trade Agreements: A (New) Gravity Estimation

This paper investigates the role of regional trade agreements (RTAs) on bilateral international migration. Building on a gravity model for migration, our econometric strategy controls for the multilateral resistance to migration and solves the zero migration flows problem by using a censored quantile regression approach. Further, the endogeneity problem of RTAs in migration settlement is addressed by using instrumental variable censored quantile regression. Our results suggest that the presence of a RTA stimulates the migration stocks among member countries. The pro‐migration effect of RTAs is magnified if the agreement includes also provisions easing bureaucratic procedures for visa and asylum among member countries. Finally, we find an asymmetric effect of RTAs across the quantiles of the distribution of migration settlements.     

Benefit imbalances among credit union member groups: evidence of borrower-dominated,saver-dominated and neutral behaviour?

Theoretical models of credit union (CU) behaviour suggest that CUs may be saver-dominated, borrower-dominated, or neutral. A CU is dominated if it is operated for the benefit of one member group at the expense of the other. Neutral behaviour occurs when a CU is managed so that both member groups are equally benefited. This empirical study develops a direct measure of the monetary benefits to each member group and tests for the existence of dominated behaviour among US CUs in 1984 and 1985. Evidence of dominated and neutral behaviour is found and the operating characteristics of these distinct organizational forms are generally consistent with theoretical expectations.     

Trade-creation and trade-diversion effects of regional trade arrangements: low-income countries

Although the number of regional trade arrangements (RTAs) among the lowest-income developing countries is surging, the literature on their welfare effects is still scarce, and the few that exist fail to provide conclusive results. Furthermore, these RTAs are dominated by countries with a small share of total exports destined for intraregional trade flows. Our study focuses on the welfare effects of RTAs (pertaining to trade creation and trade diversion) among this group of countries. We use a theoretically justified gravity model to estimate welfare effects, focusing on trade creation and trade diversion and deviating from the norm in related studies, accounting for heterogeneity in third countries. Using ECOWAS as a sample, we estimate welfare effects on 1992–2012 annual bilateral imports for 14 countries from 169 countries. Contrary to conventional expectations in the literature, we find that economic integration among small and relatively low-income countries that have a small share of total trade with each other is welfare-improving for the members as a group, for the majority of the individual member countries, and for some third countries. Accounting for heterogeneity in third countries reveals that an RTA among low-income countries has a particularly robust trade-creation effect.     

CREDIT UNION TO MUTUAL CONVERSION: DO INTEREST RATES DIVERGE?

This study conducts a cross-sectional analysis of 175 depository institutions, assessing the impact on the interest rates charged on loan products and offered on savings products by the size of the institution, its liquidity, its net worth, its tax and salary payments, and its status as a for-profit institution, a credit union (CU), or a converted CU. We find that banks and converted CUs have interest rates significantly less favorable for consumers than CUs, suggesting that a CU converting will result in adverse interest rate movements for its customers. ( JEL 621, L3)     

Regional Integration Agreements,Trade Flows and Economic Crisis: A Static and Dynamic Gravity Model

Regional trade agreements (RTA) strengthening is a crucial component of the contemporary global economy. These agreements are considered beneficial in many senses (economics: trade, FDI, growth, etc.) and are a stabilizing factor in international relations (politics). In this paper, I study the effects of RTAs on exports between members and non-members taking into account the Viner specification. I also try to estimate the effect of the recent economic crisis on the export flows and achievement of RTAs. I use a static and dynamic gravity model to 40 countries belonging to 6 heterogeneous RTAs for the period 1980–2011. This model is estimated taking into account the latest estimation techniques that treats endogeneity effects of integration and the existence of dynamic effect.     

EAST ASIAN REGIONAL TRADE AGREEMENTS: DO THEY PROMOTE GLOBAL FREE TRADE?

Abstract.  We quantitatively evaluate the effects different paths have on East Asian Regional Trade Agreements (RTA), which include expansionary, duplicate and overlapping RTAs. By applying a computable general equilibrium model analysis, we find that the static effect of existing, proposed and negotiating East Asian RTAs on world and members' welfare is sufficiently positive. It will lead to non-discriminatory global free trade, by triggering the domino effect of regionalism if the RTAs take an expansionary path by cooperating with each other, in contrast to competing to achieve the first mover advantage, or hub self-interest.     

Does a Regional Trade Agreement Lessen or Worsen Growth Volatility? An Empirical Investigation

This paper assesses how regional trade agreements (RTAs) impact on growth volatility for a sample of 170 countries over the period 1978–2012. Notwithstanding concerns that trade openness through RTAs might heighten exposure to shocks, RTAs through enhanced policy credibility, improved policy coordination and reduced risk of conflicts can also ease growth volatility. Empirical estimations suggest the benefits outweigh the costs as RTAs are consistently associated with lower growth volatility. In addition, smaller economies benefit more from the reduced growth volatility associated with RTAs than larger ones. The nature of the RTA also matters as shallow agreements such as partial‐scope preferential trade agreements do not appear to have a significant effect on growth volatility, whereas free trade areas and customs unions do. Finally, in investigating the drivers of RTAs, the regression results confirm that countries that are more prone to shocks are more likely to join an RTA, in particular with countries with relatively less volatile growth.     

Multilateralism and Hub‐and‐Spoke Bilateralism*

This paper studies sequential negotiations of bilateral free‐trade agreements in an oligopoly model. The expansion of trading blocs through overlapping trade agreements allows the option of hub‐and‐spoke systems and achieves multilateral free trade as the equilibrium path, even if the expansion of trading blocs through the acceptance of new members is not feasible. The results suggest that free‐trade areas (FTAs) tend to expand more than customs unions (CUs). Lobbying by a producer can either promote or undermine the achievement of multilateral free trade through overlapping FTAs.     

Do South–South preferential trade agreements undermine the prospects for multilateral free trade?

Due to trade diversion, there have been concerns expressed over the proliferation of preferential trade agreements (PTAs) that include South countries. In this paper, we compare welfare across different geographic configurations of bilateral free trade agreements (FTAs) and customs unions (CUs) and examine their implications for the stability of multilateral free trade. While North–North PTAs do tend to yield higher global welfare than South–South PTAs, a single South–South FTA may make free trade more sustainable than any other single agreement. With pre‐existing North–North agreements and a large enough cost asymmetry between regions, an additional South member or a new South–South agreement always makes free trade harder to sustain.     

Evaluating Russia’s trade patterns

This article offers empirical evidence on the major trends in the nature of Russia’s trade and on the determinants of the different types of trade: horizontal intra-industry trade (HIIT), vertical intra-industry trade (VIIT) and inter-industry trade (INT). The estimation results of gravity-type log-linear models suggest that the combined economic size of Russia and the trading partner has a positive effect, while the distance between the two countries has a negative effect for all types of trade. They also suggest that FDI has a significant effect on all types of trade; however, the effect varies according to whether the partner country is a member of the CIS/CU or not, and whether the FDI is outward or inward.