A Test of Endogenous Trade Bloc Formation Theory on EU Data

Richard Baldwin and Roland Rieder (roland@rieder-uhren.ch)
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Roland Rieder: SBB Cargo and German Daimler AG

East Asian Economic Review, 2007, vol. 11, issue 2, 77-110

Abstract: This paper empirically confronts one explanation of spreading regionalism with the European experience. The domino theory asserts that forming a preferential trade area, or deepening an existing one, produces trade diversion that generates new political-economy forces in third nations as third-nation exporters seek to redress the new discrimination and profit from newly deepened preferences. The pressure increases with the bloc's size, yet bloc size depends upon how many nations join, so a single incidence of regionalism may trigger several rounds of membership requests from nations that were previously happy to stay out. We estimate a time-series of EU trade creation and diversion over the last five decades and use these to estimate a model of EU membership demands. The results provide broad support for the model and show that trade diversion has a more powerful impact on membership than trade creation.

Keywords: Domino Theory; Regionalism; FTAs (search for similar items in EconPapers)
JEL-codes: F13 F15 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (11)

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http://dx.doi.org/10.11644/KIEP.JEAI.2007.11.2.171 Full text (application/pdf)

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Working Paper: A Test of Endogenous Trade Bloc Formation Theory on EU Data (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0145

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