Formation of Interdependent Regional Trade Agreements and Production Networks

24 Pages Posted: 19 Oct 2017

See all articles by Innwon Park

Innwon Park

Korea University

Soonchan Park

Kongju National University

Date Written: October 2017

Abstract

Production networks (PNs) can be defined as a determinant of trade partnership. Deepening PNs may generate positive welfare effects and lead to a proliferation in the formation of interdependent regional trade agreements (RTAs). This paper theoretically develops the link between PNs and the formation of RTAs and empirically investigates the link by applying a qualitative choice model estimation methodology (probit) with panel data that covers bilateral country‐pairs among 147 countries between 2000 and 2010. We find that the RTA formation has been strongly driven by deepening PNs between members as well as with third countries. We also find that production network‐driven RTA interdependence is member specific.

Keywords: instrumental variable, Probit, production networks, regional trade agreements

Suggested Citation

Park, Innwon and Park, Soonchan, Formation of Interdependent Regional Trade Agreements and Production Networks (October 2017). The World Economy, Vol. 40, Issue 10, pp. 2032-2055, 2017. Available at SSRN: https://ssrn.com/abstract=3055485 or http://dx.doi.org/10.1111/twec.12489

Innwon Park (Contact Author)

Korea University ( email )

Soonchan Park

Kongju National University ( email )

527 Yesan
340-800 Choongnam
Korea

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