Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
38
point of view of this study, what is of interest are the coefficients on RTA (and also EU and
CUSA/NAFTA). These are the coefficients which capture the extent to which an RTA is
associated with higher trade. From the table it can be seen that the RTA coefficient is positive
and statistically significant and ranges from 0.28 to 0.47. This translates into saying that on
average trade between countries who have an RTA is between 32% to 80% higher. Note that
causality cannot be attributed here. In other words we cannot conclude from this that trade is
higher because of the RTA.
More recently (Eicher, Henn and Papageoriou, 2012) analyse the trade creation and diversion
effects of many different multilateral and bilateral trade agreements between 1960 and 2000.
They also added additional control variables such as if the pair of countries share the same
colonizer or if the country is an island. The analysis is very comprehensive as the authors also
considered the accession dynamics involved in these agreements where the effects of them are
faded in rather than being immediate. They found, as in many analysis, that agreements such
as MERCOSUR or NAFTA tend to be dominated by trade diversion as a result of maintaining
relatively high external tariffs.
Figure 1: Head and Mayer Summary Gravity Modeling Results
Source: Head & Mayer, 2013
In general, agreements such as CARICOM or APEC tend to be dominated by trade creation
factors. However, when dynamic accession effects are considered, the trade creation effects
tend to increase, particularly in regional agreements. This is explained by the fact that the
effect of an FTA may impact before the accession or the implementation day. For example, the