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Economic determinants of free trade agreements |
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| Authors: | Scott L Baier Jeffrey H Bergstrand |
| Institution: | a John E. Walker Department of Economics, Clemson University, Clemson, SC 29634, USA b Research Department, Federal Reserve Bank of Atlanta, Atlanta, GA 30309, USA c Department of Finance and Business Economics, Mendoza College of Business, Kellogg Institute for International Studies, University of Notre Dame, Notre Dame, IN 46556, USA |
| Abstract: | The purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements (FTAs) and of the likelihood of FTAs between pairs of countries using a qualitative choice model. We develop this econometric model based upon a general equilibrium model of world trade with two factors of production, two monopolistically-competitive product markets, and explicit intercontinental and intracontinental transportation costs among multiple countries on multiple continents. The empirical model correctly predicts, based solely upon economic characteristics, 85% of the 286 FTAs existing in 1996 among 1431 pairs of countries and 97% of the remaining 1145 pairs with no FTAs. |
| Keywords: | Free trade agreements International trade Qualitative choice models |
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