Trade Agreements in Arab Countries: What Are the Effects on Their Trade? (A Gravity Modeling Approach)

Abstract

This paper investigates the effects of proliferating Regional Trade Agreement (RTA) in Arab countries on their trade performance. The main question that the paper is trying to answer is: Why countries in Arab region are racing toward signing RTAs with different trading partners. Are there any evidences that the trade performance of the countries that have membership in many RTAs is better than those of countries that have less number of RTAs? By focusing on the trade creation and trade diversion effects, a gravity model has been applied using panel data on variables including Arab countries and their most important trading partners during the period from 1980 to 2010. The results of the gravity model found that the Arab countries with overlapping membership in a number of trade agreements have more significant positive effects in the form of having bigger volume of trade than those of the other countries. The result of the paper supports the argument that countries engaged in many and overlapping trade agreement would benefit by countervailing their negative effects in some separate agreements with positive overall gains resulting from being “trade hub” that has an access to different markets with preferential terms.