Third-Country Effects on the Formation of Free Trade Agreements

30 Pages Posted: 26 Jun 2010

See all articles by Sumit Joshi

Sumit Joshi

George Washington University - Department of Economics

Maggie Xiaoyang Chen

George Washington University

Date Written: April 26, 2010

Abstract

The recent proliferation of free trade agreements (FTAs) has resulted in an increasingly complex network of preferential trading relationships. The economics literature has generally examined the formation of FTAs as a function of the participating countries' economic characteristics alone. In this paper, we show both theoretically and empirically that the decision to enter into an FTA is also crucially dependent on the participating countries' existing FTA relationships with third countries. Accounting for the interdependence of FTAs helps to explain a significant fraction of FTA formations that would not otherwise be predicted by countries' economic characteristics.

Keywords: free trade agreements, third-country effect, loss sharing, concession erosion

JEL Classification: F15

Suggested Citation

Joshi, Sumit and Chen, Maggie Xiaoyang, Third-Country Effects on the Formation of Free Trade Agreements (April 26, 2010). Journal of International Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1630461

Sumit Joshi

George Washington University - Department of Economics ( email )

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HOME PAGE: http://www.gwu.edu/~econ/faculty/joshi.html

Maggie Xiaoyang Chen (Contact Author)

George Washington University ( email )

710 21st Street NW
Washington, DC 20052
United States

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