Does Regional Integration Promote the Multilateralization of Trade Flows?: a Gravity Model Using Panel Data

Abstract

We will be asking ourselves whether the trading blocs created or renewed since the end of the 1980s favor the multilateralization of trade, and so constitute building or stumbling blocks with regard to trade flows. In a gravity model using panel data, we estimate a set of three regional dummies representative of intrabloc trade, extra-bloc exports and extra-bloc imports. Taking the resulting three coefficients as a starting point, we propose an original typology of trade creations / diversions and of trading blocs. By applying this to our results, all the groups chosen as well as the Economic and Monetary Union, are shown to be building blocks. No trade diversion is noted, apart from an export diversion brought about by the North American Free Trade Agreement.• JEL Classification: F13, F15, C23•

A New Examination of the Impacts of Regional Trade Agreements on International Trade Patterns

“…In a cross-sectional study by Soloaga and Winters (2001), an import creation effect was present in the cases of the EU, EFTA, NAFTA, and ASEAN and negative effects were found on extra-bloc trade for Andean, CACM and Mercosur agreements, on average, over the period of 1980~1996. Carrère (2006) and Trotignon (2010), who employed the panel data approach, also found an increase in the propensity of the EU to export to the rest of the world. Meanwhile, Endoh (1999) pointed to trade creation effect in the EEC over the period of 1960~1994 through all three channels, i.e., intra-bloc trade and extra-bloc trade in terms of both exports and imports.…”

“…Thus, the coefficients of and will determine the trade creation and trade diversion effects for a specific RTA. We demonstrate our method of analyzing the signs of the RTA coefficients, inspired by Soloaga and Winters (2001), Carrère (2006) and Trotignon (2010),…”

“…Meanwhile, Endoh (1999) pointed to trade creation effect in the EEC over the period of 1960~1994 through all three channels, i.e., intra-bloc trade and extra-bloc trade in terms of both exports and imports. For the Andean Community, Mercosur, NAFTA and ASEAN, Carrère (2006) showed a falling propensity to import from the rest of the world in the wake of the formation of these RTAs, while Trotignon (2010) found opposite effects, as the author demonstrated an increase in extra-bloc trade in terms of imports coming from non-members. Although the two authors both use the panel gravity model, their studies have very conflicting results due to the differences in the econometric methods included in their models.…”

“…Regarding the effects of RTAs on welfare, one can identify an RTA as being harmful to non-members when the coefficient on the extra-bloc trade concerning exports to non-members is negative; this leads to a falling inclination of member countries to ship their goods to the rest of the world and results in welfare losses for the outsiders. On the other hand, if it is more costly for the producers within an RTA to produce goods than those in the rest of the world, it indicates inefficiency in the allocation of resources worldwide, which is also detrimental to the outsiders of RTAs (Trotignon 2010).…”

Consequence of Regional Trade Agreements to Developing Countries

“…The three RTA variables allow us to determine the trade creation and diversion effects imputable to the various country groups and to see if they constitute building blocks or stumbling blocks to economic progress. In assessing our results, we use a typology of trade creation and diversion drawn up by Trotignon (2010). Interpretation of the three coefficients with this typology is summarized in Tables 2 and 3.…”