On the relationship between the breadth of PTAs and trade flows
Rod Falvey & Neil Foster-McGregor
#2017-038
This paper uses matching econometrics to extend the literature
investigating the impact of Preferential Trading Arrangements (PTAs) on
goods trade flows. Heterogeneity in PTAs is accounted for through a
'provision count index' derived from data provided in a recent World
Bank study (Hofmann et al, 2017). PTA formation now involves two
separate, sequential decisions - first, whether two trading partners
should form a PTA and, second, if they do, how broad that agreement
should be. We find that our explanatory variables are significant for
both decisions, but often have opposing effects on each. Using our
matched PTA and non-PTA groups of country-pairs, we estimate a dose
response function which indicates that arrangements with few provisions
and arrangements with many provisions do not appear to have a
significant impact on goods trade flows between their members. PTAs in
an intermediate range are shown to have a significant positive effect.
We then relate these outcomes to the actual content of the PTAs using
the concept of 'provision intensity'.
Keywords: Preferential Trade Agreements, Trade Flows, PTA Breadth
JEL Classification: F10, F15