Deep Integration: Considering the Heterogeneity of Free Trade Agreements

Abstract

Regional Trade Agreements have emerged in an environment of stalled multilateral trade negotiations. Although the impact of Regional Trade Agreements on international trade has been well documented, scant attention has been paid to empirical studies exploring their heterogeneity from the point of view of deep integration. We set out to determine whether deeper Regional Trade Agreements promote trade more effectively than less ambitious ones. We generate credible deep integration indicators using two recently available datasets from the World Trade Organization and the World Trade Institute. We then test the effect of depth on trade using a gravity model. We treat additive indicators as factor variables and use multiple correspondence analysis to obtain distilled indicators of deep integration to offer new insights and confirm recent deep integration findings. We find that deeper Regional Trade Agreements increase trade more than shallow agreements do, irrespective of whether the provisions they contain are within or beyond the competence of the World Trade Organization. JEL Classifications: F13, F14, F15, F53

A sensitivity analysis on the impact of regional trade agreements in bilateral trade flows

“…Considering the heterogeneity of economic integration agreements, Egger and Nigai (2015) concluded that shifting to deeper trade agreement increases welfare, this effect being particularly high for some countries. Kohl et al (2016); Ahcar and Siroën (2017) confirmed the effects of deep integration on trade, where deeper agreements result in larger gains. Baier et al (2018) also found that certain integration settings produce greater impacts on the intensive margin than on the extensive margin.…”

Can Trade Integration Lead to Economic Development Convergence?

“…Analysis of the integration of the Indonesian economy with its rubber trading partner countries in the ASEAN region, then there are two approaches used namely the principal component analysis (PCA) approach [12], and multiple correspondence analysis (MCA). The PCA approach is more suitable for analysing economic integration using variable categories, whereas if using continuous variables it is more suitable to use MCA [4]. Therefore this research specializes in the MCA approach.…”

“…Finally, the change in the value of rubber exports is of course also strongly influenced by the size of the economic progress of Indonesia's rubber trading partner countries which will be seen from the value of GDP at current prices from time to time. The complete model [11], can be stated as follows: (4) Changes in Indonesia's rubber exports will be influenced by changes in the export orientation shown by the ratio between the volumes of Indonesian rubber exports to the volume of rubber exports in the ASEAN region. It is assumed that the greater the ratio of the export value to the value and formation of its GDP, the rubber export activity will become increasingly high, so that the intensity of rubber trade with this country will be higher.…”

“…Economic integration in one region is always preceded by integrating trade between countries, especially in some of its mainstay commodities, through the preparation of regional trade agreements [1][2][3][4]. Trade integration is one form of economic integration in one region and globally.…”

Trade law and trade flows

“…International economists have begun to realise that the deepness of institutional agreements may be a source of heterogeneous effects on bilateral trade (see, e.g. Vicard, 2009;Ahcar & Siroën, 2017or Falvey & Foster-McGregor, 2018. Trade law is no different; we can expect heterogeneous effects of the different initiatives to increase institutional quality.…”