Trade damper effect of regional trade agreements

Abstract

The authors explore the impact of crises on the dynamics of trade between partners within regional trade agreements (RTAs) with the aim to determine whether RTAs have a stabilizing effect on foreign trade. RTAs have become one of the main instruments of trade policy in recent decades. It is generally recognized that RTAs do stimulate trade at the time of stability and growth. It is logical to assume that meeting commitments between RTA partners should lead to the preservation of trade flows between them in the event of a crisis. However, this statement requires empirical confirmation. The study examines the effects of RTA networks for the three most active RTAs’ participants located on different continents — the EU, Chile and the Republic of Korea. The analysis of dynamics of these countries trade flows indicates a clear trend of strengthening trade interaction between RTA partners during crisis periods. The focus of the methodology of the study lies in computations of three trade indices: export significance index, trade intensity index and symmetric trade introversion index. They were calculated for the totality of trade partners for the EU, Chile and the Republic of Korea from 2005 to 2020 in order to identify the dominant tendencies of trade flows during periods of economic shocks of recent decades (the financial crisis of 2008—2009 and the crisis caused by the pandemic of 2019—2021). The authors come to the conclusion that for the studied countries and the EU RTAs act as a damper that reduces the negative impact of crises on foreign trade. Trade between RTA countries at the time of a crisis either decreased to a lesser extent compared to trade between countries that do not have RTA, or recovered faster. This empirically confirms yet another significant importance of RTAs. The authors suggest to make similar calculations for other countries and RTAs to support the revealed pattern.