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How FTAs Affect Income Levels of Member Countries

21 Pages Posted: 13 Dec 2006  

Chan-Hyun Sohn

Korea Institute for International Economic Policy (KIEP); Yokohama National University - Department of Economics

Hongshik Lee

Korea Institute for International Economic Policy (KIEP)

Abstract

The purpose of this paper is to analyse whether FTAs cause the income levels of member economies to converge or diverge. Although existing studies predict the possibility of convergence among FTA members to a certain degree, they fail to provide definitive evidence. By using the concept of accelerating convergence, this study aims to estimate the pure convergence effects of FTAs, separate from the conventional notion of income convergence, so-called b-convergence. The neoclassical model of economic growth has been extended to incorporate varying steady states for an open-economy framework. Applying the system GMM method to a dynamic panel of data consisting of major FTAs comprising the European Union, NAFTA, Mercosur and AFTA, and encompassing the cases of launching an FTA, expanding membership or deepening FTA integration we find considerable evidence for the income convergence effect of FTAs.

Suggested Citation

Sohn, Chan-Hyun and Lee, Hongshik, How FTAs Affect Income Levels of Member Countries. The World Economy, Vol. 29, No. 12, pp. 1737-1757, December 2006. Available at SSRN: https://ssrn.com/abstract=951340 or http://dx.doi.org/10.1111/j.1467-9701.2006.00866.x

Chan-Hyun Sohn (Contact Author)

Korea Institute for International Economic Policy (KIEP) ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)
3460 1150 0 (Phone)
3460 1133 (Fax)

Yokohama National University - Department of Economics

Yokohama, 240-8501
Japan

Hongshik Lee

Korea Institute for International Economic Policy (KIEP) ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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