DP1634 Returns to Regionalism: An Evaluation of Non-traditional Gains from RTAs

Author(s): Raquel Fernández
Publication Date: April 1997
Keyword(s): Credibility, Europe Agreements, NAFTA, Regional Trade Agreements, Signaling
JEL(s): F13, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1634

The last decade has witnessed an explosion in the number of regional trade agreements (RTAs). There seems to be a general, if ill-defined, belief on the part of many policy-makers, and among some academics as well, that there is more to an RTA then the traditional gains from trade. This paper examines several possible benefits that RTAs may confer on their partners, including credibility, signalling, bargaining power, insurance, and coordination. It assesses the necessary conditions for each of these candidates to work; gives stylized examples of specific types of policy where it might be applicable; examines real cases where the explanation might be relevant; and discusses their overall plausibility. It concludes by examining NAFTA and the Europe Agreements viewed in this light.