Working Paper: CEPR ID: DP1634
Authors: Raquel Fernandez
Abstract: The last decade has witnessed an explosion in the number of regional trade agreements (RTAs). There seems to be a general, if ill-defined, belief on the part of many policy-makers, and among some academics as well, that there is more to an RTA then the traditional gains from trade. This paper examines several possible benefits that RTAs may confer on their partners, including credibility, signalling, bargaining power, insurance, and coordination. It assesses the necessary conditions for each of these candidates to work; gives stylized examples of specific types of policy where it might be applicable; examines real cases where the explanation might be relevant; and discusses their overall plausibility. It concludes by examining NAFTA and the Europe Agreements viewed in this light.
Keywords: regional trade agreements; credibility; signaling; NAFTA; Europe agreements
JEL Codes: F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Formation of RTA (R50) | Enhanced credibility in international trade (F19) |
| Formation of RTA (R50) | Increased foreign investment (F21) |
| Formation of RTA (R50) | Increased bargaining power with respect to third parties (L14) |
| Formation of RTA (R50) | Insurance against macroeconomic uncertainties (E39) |