A re-assessment of the heterogeneous effect of trade agreements using intra-national trade flows

Abstract

This paper aims to re-examine the effects on trade of the different types of trade agreements. The extant literature highlights the existence of sizeable different effects of preferential trade agreements (PTAs) on trade along the geographical scope of the member countries, their degree of development, or the nature of the agreements (bilateral, plurilateral...). However, all previous studies investigating these heterogeneous effects suffer from important limitations because they only rely on international trade flows (which is inconsistent with the theory of gravity in international trade), do not control for general globalization trends, and do not properly account for the dynamic adjustment of trade flows. We address all these shortcomings and find that: (i) both PTAs and GATT/WTO have had a positive effect on bilateral trade; (ii) regional PTAs have a significantly larger effect on bilateral trade than interregional PTAs; (iii) South–South PTAs show the biggest trade-enhancing impact; (iv) bilateral agreements do not boost trade; and (v) enlargements of existing PTAs have a larger effect than plurilateral agreements and the agreements between two PTAs or between a PTA and a country.