Xuepeng Liu
Trade Agreements and Economic Growth Coles Working Paper Series, FALL14-09, October 2014
It is nearly a consensus among economists that free trade is generally a good thing. Freer trade is mainly achieved through trade negotiations, either multilaterally under the WTO which covers most of the countries in the world, or bilaterally through regional trade agreements (RTAs) such as the North American Free Trade Agreements and European Community. The multilateral approach under the WTO is usually regarded as the best way to liberalize world trade, but many countries have adopted a bilateral approach in recent years to form RTAs with small groups of trading partners. This paper studies the growth effects of RTAs, taking into account the WTO participation of RTA members. Because non-WTO members usually have higher tariffs than members, they have more room for larger tariff cuts through RTAs. Under this assumption, I show in a model a stronger growth effect of RTAs for non-WTO members than that for WTO members. Based on a comprehensive set of 270 RTAs and a large panel dataset covering 177 countries over the period of 1960- 2007, the regression results provide strong support for this prediction. This implies that the complementarity beetween the two approaches of trade liberalization in promoting economic growth is so far limited. WTO members need to understand what the RTAs can accomplish beyond the WTO at no further expense of multilateral rules.
Made with FlippingBook - Online catalogs