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How intermediates trade affects the formation of free trade agreements: A study analyzing pairwise trade flows of 70 countries

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  • Willert, Bianca

Abstract

International trade and fragmentation of production lead to increased trade in intermediate goods. Increased multi-stage production promotes the formation of free-trade agreements (FTA). In this paper, the relationship between intermediates trade and FTAs is examined with a two-step Pseudo Poisson Maximum Likelihood model. The analysis of a comprehensive dataset of pairwise trade-flow data of 70 countries from the years 1995-2011 shows a significant connection between trade in intermediates and the participation in free-trade agreements. A two-way relationship is identified: intermediates trade increases the probability to form a FTA and FTAs lead to an increase in intermediates trade.

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  • Willert, Bianca, 2017. "How intermediates trade affects the formation of free trade agreements: A study analyzing pairwise trade flows of 70 countries," Thuenen-Series of Applied Economic Theory 147, University of Rostock, Institute of Economics, revised 2017.
    • Handle: RePEc:zbw:roswps:147
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