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

38 Pages Posted: 14 Sep 2015

See all articles by Kangni Kpodar

Kangni Kpodar

International Monetary Fund (IMF)

Patrick A. Imam

International Monetary Fund (IMF)

Date Written: July 2015

Abstract

This paper assesses how regional trade agreements (RTAs) impact growth volatility on a worldwide sample of 170 countries with data spanning the period 1978-2012.Notwithstanding concerns that trade openness through RTAs can heighten exposure to shocks, in particular when it leads to increased product specialization, RTAs through enhanced policy credibility, improved policy coordination, and reduced risk of conflicts can ease growth volatility. Empirical estimations suggest the benefits outweigh the costs as RTAs are consistently associated with lower growth volatility, after controlling for trade openness and other determinants of growth volatility. Furthermore, regression results also suggest that countries that are more prone to shocks are more likely to join a RTA, in particular with countries with relatively less volatile growth, additionally enhancing the stabilization effect.

Keywords: Regional trade agreement, trade openness, growth volatility

JEL Classification: F13, F15, F43

Suggested Citation

Kpodar, Kangni and Imam, Patrick A., Does a Regional Trade Agreement Lessen or Exacerbate Growth Volatility? An Empirical Investigation (July 2015). IMF Working Paper No. 15/177, Available at SSRN: https://ssrn.com/abstract=2659534

Kangni Kpodar (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Patrick A. Imam

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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