Why Do Countries Enter into Regional Trade Agreements – Insights from the Literature

The world trading system witnessed a rapid rise in the formation of Regional Trade Agreements (RTAs), particularly in the post-WTO period. Despite a large number of studies conducted in this area by the trade economists, there are divergent views on the outcome of RTAs on world trade as well as there is no unanimity on the desirable mechanism of trade liberalization. The paper looks into various theoretical arguments and empirical explanations that support or opposes RTAs. A careful review of the studies identified the underlying conditions that are required for the successful functioning of the RTAs. Even though regionalism is discriminatory in nature, it enjoys as a preferred method of trade liberalisation among nations as it provides immediate results to the trade policy initiatives. The paper concludes that for the successful functioning of the RTAs, they should be carefully calibrated by identifying trade creating partners and accommodating the interests of the local stakeholders. Also, successful regional cooperation agreements should stimulate multilateral initiatives