The Impact of Regional Trade Agreements on International Trade

Abstract

The gravity model of international trade states that bilateral trade flows based on the economic sizes and distances between two units can be used to examine reasons for international trade. Regional Trade Agreements (RTAs) have appeared recently and have increased markedly in number; however, despite their importance, little study has been performed to analyze the effects of RTAs on international trade. The difference between RTAs and world trade organizations (WTO) is important. Studies of currency integration have appeared recently; however, most assume that currency integration varies the level of international trade between countries by making the proportion constant. This paper eliminates this socalled constant hypothesis and indicates that RTAs alters the slope of the relationship between countries and promote international trade. Empirical analysis indicates that the proportion is not constant. Also, this study shows that RTAs promote international trade more in OECD countries than in non-OECD countries.

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