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Product differentiation, interdependence, and the formation of PTAs

Author

Listed:
  • Kiran Ayub

    (Lewis and Clark College)

  • Peri Silva

    (Kansas State University)

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.

Suggested Citation

  • Kiran Ayub & Peri Silva, 2024. "Product differentiation, interdependence, and the formation of PTAs," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(3), pages 905-952, August.
    • Handle: RePEc:spr:weltar:v:160:y:2024:i:3:d:10.1007_s10290-023-00518-0
    DOI: 10.1007/s10290-023-00518-0
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    More about this item

    Keywords

    Preferential trade agreement; Economic integration areas; Probit model; Trade flows;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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