FTA Influence on Trade Creation and Diversion by Regional Trading Blocs

초록

Using Augmented Gravity Model in Panel context covering 9,832 country pairs (184 countries) over 9 years, this study examines tradeation and trade diversion effects of Regional Trading Blocs in presenc overlapping FTAs with reference to seven selected Regional Blocs, namely; ASEAN, NAFTA, EFTA, DR-CAFTA, EU, CARICOM andARC networked with 79 FTAs. The main research question is whether an FTA between an outsider and insider country of a Regional Trading Bloc creates trade for both parties equally or unequally. We found economically plausible and statistically significant evidences that outsider-countries trading with Regional Blocs are adversely exploited by insider-countries for their own benefits, rather than mutual, in absence of FTAs. More interestingly it was found that the countries being exploited can effectively reverse their adverse position by forming an FTA with the Regional Blocs concerned. Trading “with an FTA” is always more beneficial for both parties than trading “without an FTA,” though the benefits are unequal.

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