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Global Economy Journal

The Official Publication of the International Trade and Finance Association

Editor-in-Chief: Highfill, Jannett

Ed. by Sawyer, W. Charles

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Regionalism as a Building Block for Multilateralism

Bernhard Herz1 / Marco Wagner2

1University of Bayreuth,

2The German Council of Economic Experts,

Citation Information: Global Economy Journal. Volume 11, Issue 1, ISSN (Online) 1524-5861, DOI: 10.2202/1524-5861.1676, March 2011

Publication History

Published Online:
2011-03-22

The well-known question whether regional trade agreements (RTAs) and the multilateral trading system (MTS) are “strangers, friends, or foes” (Bhagwati and Panagariya, 1996) has gained new importance with the widespread proliferation of RTAs in recent years. Based on an extensive data set which covers most of world trade over the past 60 years and about 240 regional trade agreements, we analyze the relationship between RTAs and the MTS by combining the gravity model framework with vector auto-regression analysis. Impulse-response-functions robustly suggest that multilateral trade liberalization responds in a significantly positive way to regional trade liberalization. We also find robust evidence that RTA liberalization Granger-causes GATT/WTO liberalization. Thus, our results indicate that RTAs do not undermine the MTS but serve as building blocks to multilateral trade liberalization.

Keywords: regionalism; multilateralism; trade agreement; gravity model

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