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How FTAs Affect Income Levels of Member Countries

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  • Chan‐Hyun Sohn
  • Hongshik Lee

Abstract

The purpose of this paper is to analyse whether FTAs cause the income levels of member economies to converge or diverge. Although existing studies predict the possibility of convergence among FTA members to a certain degree, they fail to provide definitive evidence. By using the concept of accelerating convergence, this study aims to estimate the pure convergence effects of FTAs, separate from the conventional notion of income convergence, so‐called β‐convergence. The neoclassical model of economic growth has been extended to incorporate varying steady states for an open‐economy framework. Applying the system GMM method to a dynamic panel of data consisting of major FTAs – comprising the European Union, NAFTA, Mercosur and AFTA, and encompassing the cases of launching an FTA, expanding membership or deepening FTA integration – we find considerable evidence for the income convergence effect of FTAs.

Suggested Citation

  • Chan‐Hyun Sohn & Hongshik Lee, 2006. "How FTAs Affect Income Levels of Member Countries," The World Economy, Wiley Blackwell, vol. 29(12), pages 1737-1757, December.
    • Handle: RePEc:bla:worlde:v:29:y:2006:i:12:p:1737-1757
    DOI: 10.1111/j.1467-9701.2006.00866.x
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    Cited by:

    1. Liu Haiyun & Yassin Elshain Yahia & Md Ismail Hossain & Sayyed Sadaqat Hussain Shah, 2023. "The effect of integration processes of the Common Market for Eastern and Southern Africa on the economic growth of the member states," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 93-111, January.
    2. Vollrath, Thomas L. & Grant, Jason H. & Hallahan, Charles B., 2012. "Reciprocal Trade Agreements: Impacts on U.S. and Foreign Suppliers in Commodity and Manufactured Food Markets," Economic Research Report 131618, United States Department of Agriculture, Economic Research Service.
    3. Hur, Jung & Park, Cheolbeom, 2012. "Do Free Trade Agreements Increase Economic Growth of the Member Countries?," World Development, Elsevier, vol. 40(7), pages 1283-1294.
    4. Anoruo, Emmanuel, 2019. "Testing for Convergence in Per Capita Income within ECOWAS," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 72(4), pages 493-512.
    5. Hameed Gul & Ihtisham ul Haq & Dilawar Khan, 2022. "Exploring Intra-Group Income Convergence for the Central Asian Countries," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(3), pages 448-461, September.

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