Free Trade Agreements and Local Economic Development: a Global Analysis with High-Resolution Data

John Cruzatti C.
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John Cruzatti C.: Alfred-Weber-Institute for Economics

Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS from Condorcet Center for political Economy

Abstract: This paper analyses the e ects of Free Trade Agreements (FTAs) on subnational economic development in 170 countries over the 1990-2015 period. Applying a di erence-in-di erence strategy, I exploit subnational variation on how FTAs distinctively a ect areas that are mainly suitable for agriculture, manufacturing, and the provision of services. I test two mechanisms that can connect our main results on development with popular resistance against FTAs. One, I expect a larger number of winners in primary industries - due to the comparatively higher geographic concentration in secondary and tertiary economic sectors. Two, I argue FTAs that include legal provisions beyond tari s and quotas are less e ective in promoting local development - due to the potential increase of external transaction costs. My main results indicate that FTAs improve local economic development. However, the e ect is largely driven by the agricultural sector. I find moreover that FTAs including provisions on standards, public procurement, and intellectual property rights, reduce the positive impact of FTAs. Finally, I show how these FTAs' gains are bigger for developed countries

Date: 2019-09
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