Regional Trading Blocs in the World Economic System

by Frankel, Jeffrey A.; Stein, Ernesto; Wei, Shang-Jin

• ISBN13: 9780881322026
• ISBN10: 0881322024
• Format: Paperback
• Copyright: 1997-10-01
• Publisher: Peterson Inst for Intl Economics

Summary

he rapid growth of regional trading relationships in Europe, Asia, and Latin America has raised policy concerns about their impact on excluded countries and on the global trading system. Some observers worrythat the multilateral system may be fracturing into discriminatory regional blocs. Others are hopeful that regional agreements will go beyond what was achieved in the Uruguay Round and instead become building blocks for further global liberalization and WTO rules in new areas.Jeffrey Frankel shows through extensive empirical analysis that the new breed of preferential trade arrangements are indeed concentrating trade regionally. He then assesses whether regionalblocs are "natural" or "supernatural"b enhance or reduce global welfare. He concludes that a complete liberalization within blocs, with no reduction in barriers between blocs, would push the trading system into the supernatural zone of an excessive degree of regionalization. More balanced patterns of liberalization, however, give favorable trading arrangements that are already in effect, and the broad

Table of Contents

Preface	xi	(4)
Acknowledgments	xv
1 Introduction to Regional Trading Arrangements	1	(18)
MFN and Article XXIV	2	(2)
The Recent Move to Regionalism	4	(8)
Key Terms	12	(7)
2 Simple Measures of Regional Concentration in Trade	19	(16)
Intraregional Trade Shares and What Is Wrong with Them	21	(4)
Concentration or Intensity Ratios	25	(4)
The Proximity School versus the Discriminatory Policies School	29	(6)
3 Importance of Geographical Proximity in Trade	35	(14)
Why Geography Should Be Part of Trade Theory	37	(3)
Three Kinds of Costs to Doing Business at a Distance	40	(6)
Indirect Evidence on the Importance of Distance	46	(3)
4 The Gravity Model of Bilateral Trade	49	(28)
The Technique of OLS Regression	50	(2)
The Gravity Equation	52	(9)
Our Results for the Basic Gravity Variables	61	(13)
Linguistic Links	74	(2)
The Panel Approach-Pooling Time Series and Cross-Section	76	(1)
5 Estimated Effects of Trading Blocs	77	(38)
Trading Blocs in Europe	78	(12)
Trading Blocs in the Western Hemisphere	90	(7)
Trading Blocs in East Asia and the Pacific	97	(8)
Trading Blocs Among Other Less Developed Countries	105	(2)
Are Regional Trading Arrangements Trade-Diverting?	107	(5)
Summarizing the Results	112	(3)
6 Extensions of the Empirical Analysis	115	(34)
The Importance of Political Factors in Trade	115	(10)
The Importance of History	125	(4)
The Effect of Cumulative Foreign Direct Investment	129	(4)
Rich and Poor Countries	133	(2)
The Role of Currency Links	135	(4)
Bilateral Exports and Imports: The Roles of Relative Prices and Relative Distance	139	(5)
Econometric Extensions	144	(3)
Conclusions from the Gravity Model	147	(2)
7 A Model of Trade in Imperfect Substitutes with Intercontinental Transport Costs	149	(16)
The Question of a Rationale for Article XXIV	149	(1)
The Krugman versus Krugman Debate	150	(5)
The Theory of Trade with Imperfect Substitutes and Transportation Costs	155	(10)
8 Natural and Supernatural Trading Blocs	165	(32)
The Welfare Implications of Free Trade Areas	165	(5)
Allowing for Preferential Trade Arrangements on Each Continent	170	(8)
How Sensitive Are the Results to the Assumption of Trade Based Solely on Variety?	178	(4)
Welfare Effects of Regional Blocs That Do Not Coincide with Continents	182	(7)
The Asymmetric Formation of Individual Blocs, the Terms of Trade Effect, and the Symmetric Noncooperative World Equilibrium	189	(8)
9 Has Regionalization Entered the Supernatural Zone?	197	(10)
An Estimate of Physical Shipping Costs	197	(3)
An Estimate of Intercontinental Costs Inferred from Intraregional Trade Shares	200	(2)
The Preferred Estimate of Intercontinental Costs from the Gravity Model	202	(1)
An Estimate of Existing Preferences from the Gravity Model	203	(1)
Conclusion on the Welfare Effects of Partial Regionalization	204	(3)
10 A Political Economy Survey of Regionalism's Effect on Global Liberalization	207	(22)
Stumbling Blocks or Building Blocks?	209	(1)
Stumbling Blocs: Negative Implications of Regionalism for Multilateral Liberalization	210	(6)
Building Blocs: Positive Implications of Regionalism for Multilateral Liberalization	216	(9)
Which Effects Appear to Dominate in the Trade Data?	225	(4)
11 Conclusions and Recommendations	229	(17)
Recommendations	231	(15)
Appendices	246	(81)
Appendix A An Outline and History of Regional Trading Arrangements	246	(35)
Appendix B Further Measures of Regional Trade Integration	281	(32)
Appendix C An Added Note to Chapter 4 on the Intercepts in the Pooled Estimates	313	(2)
Appendix D Sensitivity Analysis	315	(12)
References	327	(18)
Index	345