The Spillover Effects of Regional Trade Agreements on Trade

Dakshina De Silva, Soon Cheul Lee (), Robert P. McComb and Maurizio Zanardi
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Soon Cheul Lee: Busan University of Foreign Studies
Robert P. McComb: Texas Tech University

No 18-8, Working Papers from Korea Institute for International Economic Policy

Abstract: The purpose of this paper is to examine whether or not there is a spillover effect of third countries’ regional trade agreements (RTAs) on their bilateral trade relationships. To identify the RTA spillover effects, we expand a gravity model into a third-country framework using a dataset of bilateral trade and RTAs for 62 country-pairs over the period 2002-2013. We construct a weighted thirdcountries’ RTA contiguity matrix as well as a spatially-weighted matrix to identify both the spillover and spatial effects of RTA on trade flows. The results show that the spillover effects of RTAs on trade are positive while the spatial effects of RTA are negative and imply that third parties’ RTAs have complementary effects on bilateral trade while the existence of neighbors in the RTA between the two trade partners reduces their bilateral trade. As a result, the proliferation of RTAs expand international trade through spillover effects as well as trade creation and trade diversion.

Keywords: regional trade agreements; spillover effects; spatial effects; gravity equation (search for similar items in EconPapers)
JEL-codes: F14 F15 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2018-12-31
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Persistent link: https://EconPapers.repec.org/RePEc:ris:kiepwp:2018_008

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