Our basic specification for estimating the average impact of APTs on trade barriers is as follows: (5) The theoretical model is based on a scenario of three countries with several commodities, in which two potential members interact strategically to determine the trade policy to be implemented towards each other and the rest of the world. For the sake of simplicity, the rest of the world is supposed not to behave strategically and instead implement a most-favoured-nation (or most-favoured-nation) policy. The underlying structure of the economy is based on the oligopolistic standard model of trade used in earlier analyses of regionalism (Krishna 1998), in which individuals earn income from the supply of labor and profits from oligopolistic enterprises whose ownership is unevenly distributed among the population. Citizens choose the trade regime (a customs union, a free trade agreement or the most-favoured-nation regime required for WTO membership) and elected representatives determine the tariffs actually to be implemented. The model focuses on three main drivers of trade policy decisions: bilateral trade imbalances, the degree of geographical specialisation between potential member countries and the prevalence of income inequality in each Member State. In this section, we review the related literature to clarify our contribution from a literature perspective. We focus primarily on two aspects of the literature: the impact of TPAs on bilateral trade and the design of APTs. The effects we discover are considerable and are described in Figure 2. In the top panel, we report on the estimated impact of trade imbalances and inequalities on the average probability of the formation of preferential trade agreements. An increase in trade imbalances by one standard deviation reduces the probability of entering into a preferential trade agreement by 6.17% above the reference level. Similarly, an increase in inequality by a standard deviation reduces the likelihood of preferential trade agreements being formed by 5.65% from the baseline.
“When a country [the United States] loses billions of dollars in trade with virtually every country it does business with, trade wars are good and easy to win. For example, if we lost $100 billion with a particular country and it`s going to be cute, don`t trade anymore – we win big. It`s easy! Preferential trade agreements also establish trade rules that, among other things, reduce differences in operating costs between member countries. For example, some APTs set minimum standards for labour and the environment and the protection of intellectual property. While the cost of compliance is high, these types of rules-based reforms can hamper trade and investment flows and make some firms less competitive in foreign markets. The United States has 14 preferential trade agreements with 20 of its trading partners. According to CBO, the consensus among economic studies is that such deals have had a small overall positive impact on the U.S. economy. Several hundred bilateral APAs have been signed since the beginning of the 20th century.
The TREND project of the Canada Research Chair in International Political Economy[6] lists approximately 700 trade agreements, the vast majority of which are bilateral. [7] We also added fixed country year effects to control for factors at the national year level, which could disrupt the estimate. The result of column (3) shows that the marginal effect of the PTA on bilateral trade continues to decrease to 0.0356, while it remains significant at the 1% level. The marginal effect of the structural gravity model shows that bilateral trade would increase by 3.56% if countries had an RTA between them. In addition, we examined the effects of PTAs on the same currency that keeps the other parameters constant. The results showed that APTs increase bilateral trade flows when these countries have the same currency. Moreover, a common currency is good for reducing exchange rate volatility to zero [79, 80]. First, we are testing the impact of APTs on bilateral trade. The results of the panel structural gravity model are presented in Table 2. We first used the dummy variable (APT) to measure whether there is a trade agreement for both countries, and the results are presented in columns (1) to (3). The results in column (1) of Table 2 show that the impact of ATAs on bilateral trade is positive and significant.
This means that a trade agreement helps to increase the flow of trade between APT member countries. These results are consistent with the existing study [75]. We also monitor economic economies of scale. The economic economies of scale (income effect) of exporting/importing countries (contractual partners) on bilateral trade flows are clearly positive. Certainly, economic economies of scale increase bilateral trade between partners. It should be noted that the order of magnitude (0.31 for importers, 0.35 for exporters) of the two partners is significant at the level of 1%, but is slightly different. This means that trade on both sides will increase significantly, ultimately increasing welfare gains for both countries. The positive influence of income has been validated with Yao et al. [76]. However, geographical distance has a negative impact on bilateral trade flows, which is consistent with the results of the traditional gravity model.
This means that the distance due to shipping costs for the transport of goods from one country to another leads to a decrease in bilateral trade. As a result, neighbouring countries are more likely to promote bilateral trade than distant countries. Our results have consistently confirmed that neighbouring countries are making a positive contribution to the increase in bilateral trade, as the impact on the coefficient (0.3975) is significantly positive. Communication is important to promote trade between two countries [77]. For example, each country has its own rules and regulations, which are regulated between the two countries through communication. Therefore, a common language can be a powerful tool to deal with these problems, i.e. more communication in the same language, more euphemism on a more international supply chain and therefore more trade [76]. Colonial relations also affected trade between two countries [77]. Our results also show the positive influence of the colonial era on trade. This means that the colonies strengthen their trade relations. Money helps determine the economic health of a country.
The same currency would help promote trade between countries, as trade becomes cheaper if trading partners have the same currency [78]. In addition, our results showed a positive impact on trade flows. Suppose Xij is the value of exports from one country i to another j. Here, Ej is the total edition of goods purchased in j (including goods produced at home and abroad). The share of country expenditure specifically devoted to country i goods is directly subject to the following three factors: (i) I refer to the production technologies used in i; (ii) the salary in country i (3) τij are the iceberg costs for products shipped from country i to j. We assume that goods from other countries are imperfectly substitutable. Consequently, the impact of production and trading costs on trade is subject to a constant elasticity of trade θ > 1. In this study, we uploaded each PTA document (302 in total) and extracted all products whose trade barriers are removed to promote free trade.
Translations into Spanish and French were used to identify all the products mentioned in the APT. .
