WORKING PAPER 07-1

The Trade Effects of Preferential Arrangements: New Evidence from the Australia Productivity Commission

by Dean A. DeRosa, Peterson Institute for International Economics

January 2007

Do preferential trade arrangements (PTAs) create or divert trade? An Australia Productivity Commission study assesses large PTAs such as NAFTA, the European Union, Mercosur, as well as smaller PTAs such as the Andean Group using gravity models and Tobit regressions and suggests that major PTAs are trade diverting while minor PTAs are trade creating. Using an augmented Rose gravity model, the author challenges the APC’s results by first measuring the 20 PTAs in the APC study and then expanding to include nearly 46 PTAs in total. While the author does not fault the APC’s methodology, he concludes that most current PTAs are trade creating and that there is no uniform evidence of trade diversion.

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RELATED LINKS

Paper: Submission to the USTR in Support of a Trans-Pacific Partnership Agreement January 25, 2010

Speech: The Future of APEC and Its Core Agenda December 9, 2009

Policy Brief 09-16: Pacific Asia and the Asia Pacific: The Choices for APEC July 2009

Policy Brief 08-5: World Trade at Risk May 2008

Policy Brief 07-2: Toward a Free Trade Area of the Asia Pacific February 2007

Book: NAFTA Revisited: Achievements and Challenges October 2005

Working Paper 97-3: Open Regionalism

Article: Challenges to the Free Trade Area of the Americas October 2002

Working Paper 03-7: Labor Standards and the Free Trade Area of the Americas August 2003



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