Proliferating Regional Trade Arrangements: Why and Whither?

33 Pages Posted: 10 Dec 2008

See all articles by Jong-Wha Lee

Jong-Wha Lee

Korea University

Innwon Park

Korea University

Kwanho Shin

Korea University

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Abstract

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.

Suggested Citation

Lee, Jong-Wha and Park, Innwon and Shin, Kwanho, Proliferating Regional Trade Arrangements: Why and Whither?. World Economy, Vol. 31, Issue 12, pp. 1525-1557, December 2008. Available at SSRN: https://ssrn.com/abstract=1310964 or http://dx.doi.org/10.1111/j.1467-9701.2008.01143.x

Jong-Wha Lee

Korea University ( email )

Anam-dong, Sungbuk-Ku
Dept. of Economics
Seoul, 136-701
82-2-3290-2216 (Phone)
82-2-928-4948 (Fax)

Innwon Park

Korea University ( email )

Kwanho Shin

Korea University ( email )

1 Anam-dong 5 ka
Sunbuk-Ku, Department of Economics
Seoul 136-701
Korea
82-2-3290-2220 (Phone)
82-2-3290-2719 (Fax)

HOME PAGE: econ.korea.ac.kr/~khshin

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