Regional Trading Blocs in the... | Buy

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

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

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