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Abstract

This study uses econometric gravity equations to test whether the WTO has promoted successful regional trade agreements (RTA). Two important findings emerge. First, we find that two countries that are members of the GATT/WTO and enter into a regional trade agreement stimulate trade. However, the effect on trade is not nearly as large as that between two RTA members that belong to the GATT/WTO. Contrary to the findings in Rose (2004), this result tends to support the fact that the GATT/WTO has liberalized multilateral trade, outside of RTAs. In other words, the effect of an RTA on countries’ trade who are not party to the GATT/WTO should generate a large RTA trade response due to relatively large pre-existing trade distortions. Second, we show that the GATT/WTO has not promoted successful RTAs using explicit RTA variables that controls for the notification status (to the GATT/WTO) of an RTA. Interestingly, non-notified RTAs trade significantly more than their notified counterparts.

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