Impacts of Regional Trade Agreements on the Trade Effects of Financial Development

Abstract

Regional trade agreements (RTAs) significantly reduce tariff and non-tariff barriers, facilitate capital flow and improve financing conditions, which can help exporters ease financing constraints and promote export. This paper studies the impacts of RTAs signed by member countries of Regional Comprehensive Economic Partnership Agreement (RCEP) on the trade effects of financial development, using the gravity model with industry level bilateral trade data from 2000 to 2021. The results show that with RTAs, exporters’ dependence on financial development of home countries has decreased, and there is a similar mechanism in importing countries. However, exporters’ decreasing dependence on financial development is different, i.e., the decreasing dependence of exporters in industries rely heavily on external financing is smaller than that in other industries.