Do Trade Agreements Actually Reduce Trade Volatility?

25 Pages Posted: 18 Aug 2021

See all articles by Josh Ederington

Josh Ederington

Miami University - Farmer School of Business

Yoonseon Han

University of Puget Sound

Jenny Minier

Miami University

Multiple version iconThere are 2 versions of this paper

Date Written: July 19, 2021

Abstract

A frequently stated objective of regional and multilateral trade agreements is to stabilize trade and reduce volatility in trade flows. We examine whether trade agreements accomplish this goal. Using a structural gravity approach we identify two potential channels through which international trade institutions may influence the volatility of bilateral trade flows: by affecting the variance of trade barriers and by affecting the covariance of economic outcomes between the trading partners. We then use a panel of bilateral industry-level trade data to empirically examine the effects of regional trade agreements and GATT/WTO membership on export earnings volatility. We find some evidence that joining a multilateral trade agreement such as the GATT does make export earnings less volatile. However, regional trade agreements increase measured volatility in bilateral exports, and this rise in volatility increases as the agreement becomes deeper and more integrated.

Keywords: export earnings volatility, structural gravity model, regional trade agreements, deep trade agreements

JEL Classification: F13, F14, F15

Suggested Citation

Ederington, Josh and Han, Yoonseon and Minier, Jenny, Do Trade Agreements Actually Reduce Trade Volatility? (July 19, 2021). Available at SSRN: https://ssrn.com/abstract=3906019 or http://dx.doi.org/10.2139/ssrn.3906019

Josh Ederington

Miami University - Farmer School of Business ( email )

800 East High Street
Oxford, OH 45056
United States

Yoonseon Han

University of Puget Sound ( email )

Tacoma, WA 98416
United States

Jenny Minier (Contact Author)

Miami University ( email )

Department of Statistics
311 Upham Hall100 Bishop Circle
Oxford, OH 45056
United States

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