A Review of the Theoretical Developments and Challenges in Regional Trade Agreements

Abstract

Purpose - The core of the debate on RTAs is the economic welfare effect resulting from the provision of preferential treatment among member countries and discrimination against non-member countries, and the resulting implications for the multilateral trading system. This study aims to answer these questions by reviewing theoretical and empirical research on RTAs from an economic perspective. It also presents theoretical challenges that may reflect changes in RTAs.
 Design/Methodology/Approach - This study examines the development of RTAs from an economic perspective, covering both traditional and new approaches. It does so by reviewing the literature on the theory and empirical evidence of RTAs.
 Findings - Concerns that RTAs will cause trade diversion and have a negative impact on the multilateral trading system are greatly exaggerated in our study. We also find that deep integration is less discriminatory than RTAs, resulting in more favorable effects on economic welfare and the multilateral trading system.
 Research Implications - Beyond the theoretical for and against RTAs, given that RTAs exist as a realistic entity, a more practical approach is to explore institutional ways in which RTAs and multilateral trading systems coexist. In other words, in a situation where the WTO system is facing a crisis, a realistic answer must be found as RTAs may be the only means to supplement the WTO system.