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The growth of bilateralism
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Baier, Scott L. (Scott Leonard), Bergstrand, Jeffrey H. and Mariutto, Roland (2010) The growth of bilateralism. Working Paper. Coventry: Department of Economics, University of Warwick. CAGE Online Working Paper Series, Volume 2010 (Number 12).
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Text (Working paper)
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Abstract
One of the most notable international economic events over the past 20 years has been the proliferation of bilateral free trade agreements (FTAs). Bilateral agreements account for 80 percent of all agreements notified to the WTO, 94 percent of those signed or under negotiation, and currently 100 percent of those at the proposal stage. Some have argued that the growth of bilateralism is attributable to governments having pursued a policy of “competitive liberalization" - implementing bilateral FTAs to offset potential trade diversion caused by FTAs of “third-country-pairs" - but the growth of bilateralism
can also be attributed potentially to “tariff complementarity" - the incentive for FTA members to reduce their external tariffs on nonmembers. Guided by new comparative statics from the numerical general equilibrium monopolistic competition model of FTA economic determinants in Baier and Bergstrand (2004), we augment their parsimonious logit (and probit) model of the economic determinants of bilateral FTAs to incorporate theory-motivated indexes to examine the influence of existing memberships on subsequent FTA formations. The model can predict correctly 90 percent of the bilateral FTAs within
five years of their formation, while still predicting “No-FTA" correctly in 90 percent of the observations when no FTA exists, using a sample of over 350,000 observations for pairings of 146 countries from 1960-2005. Even imposing the higher correct prediction rate of “No-FTA" of 97 percent in Baier and Bergstrand (2004), the parsimonious model still predicts
correctly 75 percent of these rare FTA events; only 3 percent of the observations reflect a country-pair having an FTA in any year. The results suggest that - while evidence supports that “competitive liberalization" is a force for bilateralism - the effect on the likelihood a pair of countries forming an FTA of the pair's own FTAs with other countries (i.e., tariff complementarity) is likely just as important as the effect of third-country-pairs' FTAs (i.e., competitive liberalization) for the growth of bilateralism.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Free trade, International trade, International trade -- Econometric models, Customs unions, Tariff | ||||
Series Name: | CAGE Online Working Paper Series | ||||
Publisher: | Department of Economics, University of Warwick | ||||
Place of Publication: | Coventry | ||||
Official Date: | June 2010 | ||||
Dates: |
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Volume: | Volume 2010 | ||||
Number: | Number 12 | ||||
Number of Pages: | 60 | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Date of first compliant deposit: | 1 August 2016 | ||||
Date of first compliant Open Access: | 1 August 2016 | ||||
Funder: | National Science Foundation (U.S.) (NSF) | ||||
Grant number: | SES-0351018, SES-0351154 (NSF) |
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