The trade and investment effects of preferential trading arrangements

The trade and investment effects of preferential trading arrangements

Published Jan 2003

Authors

P. Dee, J. Gali

Publisher

Focus themes

Open full report
Do preferential trading arrangements increase the total level of trade?

This paper examines, both theoretically and empirically, the effects of the trade and non-trade provisions of preferential trading arrangements (PTAs) on the trade and foreign investment flows of member and non-member countries. It quantifies the impact of traditional and ‘new age’ provisions of preferential trading arrangements (PTAs) on merchandise trade and investment. It does so by estimating gravity models of bilateral trade and investment.

Findings include:

  • careful consideration of the analytical issues – including controlling comprehensively for other observable and unobservable factors, and testing explicitly for whether the trade and investment effects are significantly different after PTA formation than before – leads to the conclusion that recent and some past PTAs are not as benign as some contemporary empirical assessments have suggested
  • it is also possible for PTAs to have adverse effects on investment flows
  • if investment responds in ‘beachhead’ fashion to the trade provisions of PTAs, the trade carried out from those beachheads could constitute traditional trade diversion
  • there is little evidence of beachhead investment
  • instead, there is evidence of net investment creation in response to the ‘new age’, non-trade provisions of PTAs
  • the finding on investment is more positive than for trade, but not without qualifications, since trade diversion is still possible from the new investment positions

[adapted from author]

[This working paper is available free over the internet to readers in most developing or transition countries: if your internet connection does not automatically identify you as linking from one of these countries, you will be asked to fill in a registration form first. For those in other countries, either a series subscription or the purchase of individual reports is necessary]

[Please note: this article is accessible online, free of charge to residents of nearly any developing country or transition economy, whose internet-access address can be automatically recognised by the NBER website. If you are in a developing country/transition and still have access problems, email wwp@nber.org for support]

Related content

  • Document

    COVID-19 Impacts Cross Border Traders in East Africa

    J. Klopp, A. Krueger, M. Trimble / Global Integrity Anti-Corruption Evidence (GI-ACE), 2020
     Highlights the implications of COVID-19 on small scale cross-border trading in Kenya and Uganda. They find that Kenya-Uganda border restrictions are also reducing the work of informal border traders. This will have a knock on effect on the Ugandan economy, where informal trade accounts for 25-40% of intra-regional trade.
  • Document

    At the table, off the menu? Assessing the participation of lower-income countries in global tax negotiations

    R. Corlin Christensen, M. Hearson, T. Randriamanalina / Institute of Development Studies UK, 2020
    For half a century, the most influential international rules and standards for taxing multinational corporations have been formulated by a select group of developed countries, the OECD, with lower-income countries on the outside. Since 2013, this has changed: decision making at the OECD has moved to the ‘Inclusive Framework’ (IF), which today encompasses 137 jurisdictions.
  • Document

    Economic transformation in Vietnam

    United Nations University World Institute for Development Economics Research, 2020
    During the last three decades Vietnam has undergone a considerable economic transformation. However, little research has considered the role that financial reform has played in the development of small and medium size enterprises (SMEs).
  • Document

    COVID-19 and the African energy sector: Energy insight

    W. Shen, S. Ayele / Oxford Policy Management, 2020
    As elsewhere in the world, COVID-19 continues to ravage Africa, causing thousands of deaths and an unprecedented health crisis that is damaging to every aspect of the social and economic lives of millions of people.
  • Document

    Africa trade and Covid‑19: The supply chain dimension

    K. Banga / Overseas Development Institute, 2020
    The global Covid-19 pandemic has had an enormous impact on trade across the world. Value chains and trade have slowed down, or even been brought to a halt, via several channels:
More like this