Product differentiation, interdependence, and the formation of PTAs

Kiran Ayub () and Peri Silva ()
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Kiran Ayub: Lewis and Clark College
Peri Silva: Kansas State University

Review of World Economics (Weltwirtschaftliches Archiv), 2024, vol. 160, issue 3, No 6, 905-952

Abstract: Abstract We consider the role played by trade in differentiated inputs in the country-pair decision to form a PTA in goods and in their decision to expand it to trade in services with varying degrees of coverage, which transforms a preferential agreement into an Economic Integration Area (EIA). Our baseline model is very successful in predicting the formation of preferential agreements. Our model correctly predicts 84 percent of the country pairs with PTAs in our dataset and can successfully predict the 83 percent of the country pairs that do not form a PTA. Moreover, our model predicts 78 percent of the observations involving country pairs belonging to an EIA when a PTA exists.

Keywords: Preferential trade agreement; Economic integration areas; Probit model; Trade flows (search for similar items in EconPapers)
JEL-codes: F13 F14 F15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10290-023-00518-0

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