Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism

37 Pages Posted: 4 Apr 2008

See all articles by Scott L. Baier

Scott L. Baier

Clemson University - John E. Walker Department of Economics

Jeffrey H. Bergstrand

University of Notre Dame

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment; Ludwig-Maximilians University of Munich; CESifo (Center for Economic Studies and Ifo Institute for Economic Research

Patrick A. McLaughlin

Mercatus Center at George Mason University

Abstract

This paper argues that the competitive liberalization of national governments of the past several decades has created a market for regional economic integration agreements (EIAs). Evidence shows that countries that have selected into EIAs such as free trade agreements have chosen well in the sense that the same economic characteristics that explain and predict bilateral EIAs also explain and predict bilateral trade flows. We show that previous ex post empirical evaluations of the effects of EIAs on trade have tended to underestimate the effects due to ignoring the (endogenous) self-selection bias of country pairs into EIAs. Accounting for this bias, we find that European economic integration had a much larger impact on trade over the period 1960-2000 than previously found, and other more recent EIAs have had economically and statistically significant effects on members trade. The results shed further light on understanding the causes and consequences of the growth of regionalism.

Suggested Citation

Baier, Scott Leonard and Bergstrand, Jeffrey H. and Egger, Peter H. and McLaughlin, Patrick A., Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism. World Economy, Vol. 31, Issue 4, pp. 461-497, April 2008. Available at SSRN: https://ssrn.com/abstract=1116415 or http://dx.doi.org/10.1111/j.1467-9701.2008.01092.x

Scott Leonard Baier (Contact Author)

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States
864-656-4534 (Phone)

Jeffrey H. Bergstrand

University of Notre Dame ( email )

Mendoza College of Business
Notre Dame, IN 46556
United States
574-631-6761 (Phone)
574-631-5255 (Fax)

HOME PAGE: http://www3.nd.edu/~jbergstr

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment ( email )

Poschingerstr. 5
Munich, DE-81679
Germany
+49 0 89 9224 1238 (Phone)
+49 0 89 985369 (Fax)

HOME PAGE: http://www.cesifo-group.de/portal/page?_pageid=36,425628&_dad=portal&_schema=PORTAL

Ludwig-Maximilians University of Munich

Schackstr. 4
Munich, 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research

Poschinger Str. 5
Munich, DE-81679
Germany

Patrick A. McLaughlin

Mercatus Center at George Mason University ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States
(703) 993-9670 (Phone)

HOME PAGE: http://www.patrickamclaughlin.com

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