Working Papers

On the Economic Determinants of Free Trade Agreements

Author
Jeffrey H. Bergstrand Scott L. Baier
Abstract

Abstract

The purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements (FTAs) and of the likelihood of FTAs between pairs of countries using a qualitative choice model. We develop this econometric model based upon a general equilibrium theoretical model of world trade with two factors of production, two monopolistically competitive product markets, and explicit intercontinental and intracontinental transportation costs among multiple countries on multiple continents. The empirical model correctly predicts, based solely upon economic characteristics, 83 percent of the 289 FTAs existing in 1996 among 1,431 pairs of countries and 97 percent of the remaining 1,142 pairs with no FTAs. This paper was also published in Journal of International Economics , the leading academic journal in this field.

Resumen

El propósito de este estudio es proveer el primer análisis empírico sistemático de los determinantes económicos de la formación de acuerdos de libre comercio (ALC) y de la probabilidad de que se suscriban ALC entre pares de países utilizando un modelo cualitativo de elección. Desarrollamos este modelo econométrico basado en un modelo teórico de equilibrio general del comercio mundial con dos factores de producción, dos mercados de productos monopolítiscamente competitivos y explícitos costos de transporte inter e intracontinentales entre múltiples países en múltiples continentes. El modelo empírico predice correctamente, basándose solamente en características económicas, el 83% de los 289 ALC existentes en 1996 entre 1431 pares de países y el 97% de los restantes 1142 pares de países sin ALC.

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