The Effects of Trade Agreements on Trade : Asymmetric Partners and Types of Agreements

There are also few papers distinguishing the effects of the type of agreement. Estevadeordal, Freund et al. (2008) research CU and FTA’s effects on tariff complements using Latin America data. Innwon and Soonchan (2009) studied similar effects for East Asia. Ghosh and Yamarik (2004) divided regional trade agreements into five theoretical types based on the degree of integration: preferential tariff agreement, free trade area, customs union, common market and monetary union. They found that the total trade creation is increasing in the degree of integration of RTAs. Cipollina and Salvatici (2010) categorized RTAs into two types of agreements, which also differ from this study: reciprocal agreements involving symmetric trade liberalization, and non-reciprocal agreements involving asymmetric trade liberalization in which one country, mainly the North, provides unilateral preference. However, none of these consider the partner’s level of development. This paper will examine the impacts of forming regional trade agreement between various combination of country-pairs based on the level of development(North-North, South-South, North-South and South-North) as well as distinguishing the effects of three types of agreements (FTA, CU and PSA). The paper is organized as follows. In Section 2, we introduce and briefly derive the “micro-founded” gravity equation of Anderson and Wincoop (2003), which is new standard of the gravity model. Section 3 presents empirical specification and data source. Section 4 provides the main results of empirical estimation and then Section 5 presents the summary and conclusion