CEPII, Recherche et Expertise sur l'economie mondiale
GVCs and the Endogenous Geography of RTAs


Lionel Fontagné
Gianluca Santoni

 Highlights :
  • There has been considerable attention paid to the endogenous nature of regional trade agreements. Geography, economic size, or common history help predicting signed agreements.
  • Recent developments in terms of structural gravity help clarifying this debate by taking account of all theoretically relevant determinants of bilateral trade, as well as general equilibrium effects of signing an agreement.
  • We estimate the time-varying probability for a country pair to sign a trade agreement and build upon structural gravity in general equilibrium to determine how the patterns of Global Value Chains shape the evolving geography of optimal trade agreements.

 Abstract :
There has been considerable attention paid to the endogenous nature of regional trade agreements Geography, economic size, or common history help predicting signed agreements. However, not all signed RTAs are “natural" according to economic determinants, as trade negotiations can be used as a tool of external policy. Recent developments in terms of structural gravity help clarifying this debate by taking account of all theoretically relevant determinants of bilateral trade, as well as general equilibrium effects of signing an agreement. Indeed, the endogeneity of trade arrangements has a time dimension and is related to firm strategies. These are the two mechanisms addressed in this paper. We estimate the time-varying probability for a country pair to sign a trade agreement and build upon structural gravity in general equilibrium to determine how the patterns of Global Value Chains shape the evolving geography of optimal trade agreements. Our results confirm that the endogenous geography of RTAs is shaped by the development of GVCs.

 Keywords : Preferential Trade Agreements | Global Value Chains | Structural Gravity

 JEL : F13, F14, F16
CEPII Working Paper
N°2018-05, April 2018

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