How Preferential Trade Agreements (PTAs) Affect Non-Members.

Since the conclusion of the Uruguay Round in 1994, participation in preferential trade agreements (PTAs) has proliferated rapidly. In 1990, there were only about 70 PTAs in force. By 2010 the number of PTAs increased to almost 300. On one hand we have known since Viner (1950) that PTA formation could potentially reduce world welfare. More recently, concerns have arisen in the literature specifically about implications for the welfare of nonmembers. Chang and Winters (2002) was the first paper to provide empirical evidence of the adverse effects of PTAs on the welfare of excluded countries through the terms-of-trade effects that are generated. On the other hand there is also evidence that PTAs can lead to further unilateral liberalization by governments particularly in developing countries. The following papers contribute to this debate.

Bohara, A. K., K. Gawande, and P. Sanguinetti (2004), “”Trade Diversion and Declining Tariffs: Evidence from Mercosur” Journal of International Economics, 64(1), 65-88. [Working paper version]

Broda C., N. Limao and D. Weinstein (2008); “Optimal Tariffs and Market Power: The Evidence.”  American Economic Review, 98(5): 2032-2065. [Working paper version]

Chang W. and L.A. Winters, (2002); “How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSU.” American Economic Review, 92(4): 889-904. [Working paper version]

Estevadeordal, A., C. Freund, and E. Ornelas (2008), “Does Regionalism Affect Trade Liberalization toward Nonmembers?Quarterly Journal Economics, 123(4), 1531-1575. [Working paper version]

Karacaovali, B. and Nuno Limao (2008) “The Clash of Liberalizations: Preferential vs. Multilateral Trade Liberalization in the European Union” Journal of International Economics74(2) 299-327. [Working paper version]

Limao, N. (2006), “Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States”  American Economic Review, 96(3), 896-–914. [Working paper version]