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The effects of integration agreements in Western Hemisphere trade, 1970--2014

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  • Fernando Martin-Mayoral
  • Gabriela Morán Carofilis
  • John Cajas Guijarro

Abstract

The paper analyzes the effects of four regional integration agreements (Common Market of the South [MERCOSUR], Andean Community [ANCOM], Central American Common Market [CACM] and North America Free Trade Agreement [NAFTA]) on bilateral trade in 19 countries from the Western Hemisphere for the period 1970--2014. For this purpose we estimate different gravity models to control for trade creation and diversion, export diversification and intra-industry trade using OLS log-linearized gravity model and Poisson pseudo-maximum-likelihood panel data estimators that allow controlling for zero-value trade flows. We find trade creation for ANCOM, MERCOSUR and CACM and trade diversion for NAFTA and MERCOSUR countries. Export diversification negatively affects bilateral trade in all American agreements, while intra-industry trade has contributed to trade expansion in ANCOM and the opposite for NAFTA, MERCOSUR and CACM. Global supply chains may help us explain these results. Finally, we find anticipatory effects on trade several years before the signing of the agreements, but only NAFTA countries seem to be natural trading partners in the region while the rest of Latin American regional agreements have not resulted in a comprehensive, profound and consolidated common market.

Suggested Citation

  • Fernando Martin-Mayoral & Gabriela Morán Carofilis & John Cajas Guijarro, 2016. "The effects of integration agreements in Western Hemisphere trade, 1970--2014," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(5), pages 724-756, August.
    • Handle: RePEc:taf:jitecd:v:25:y:2016:i:5:p:724-756
    DOI: 10.1080/09638199.2015.1125519
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    References listed on IDEAS

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    1. Jeffrey A. Frankel, 1998. "The Regionalization of the World Economy," NBER Books, National Bureau of Economic Research, Inc, number fran98-1.
    2. Shang-Jin Wei & Jeffrey A. Frankel, 1998. "Open Regionalism in a World of Continental Trade Blocs," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 440-453, September.
    3. Alessandro Nicita & Victor Ognivtsev & Miho Shirotori, 2013. "Global Supply Chains: Trade And Economic Policies For Developing Countries," UNCTAD Blue Series Papers 55, United Nations Conference on Trade and Development.
    4. Mau, Karsten, 2014. "Margins, Gravity, and Causality: Export Diversification and Income Levels Reconsidered," GIGA Working Papers 249, GIGA German Institute of Global and Area Studies.
    5. Jeffrey A. Frankel, 1998. "Introduction to "Regionalization of the World Economy, The"," NBER Chapters, in: The Regionalization of the World Economy, pages 1-6, National Bureau of Economic Research, Inc.
    6. Gary Clyde Hufbauer & Jeffrey J. Schott, 1993. "NAFTA: An Assessment, Revised Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 70, January.
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    Cited by:

    1. Frederik Stender, 2018. "MERCOSUR in gravity: an accounting approach to analyzing its trade effects," International Economics and Economic Policy, Springer, vol. 15(2), pages 501-522, April.
    2. Dmitriy Aleksandrovich Izotov, 2021. "Trade Integration in the Asia-Pacific Region: Decomposition of Effects," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 1, pages 66-96.

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