Impacts of regional trade agreements on trade in agri-food products
The proliferation of regional trade agreements during last ten years intensified the debate on the merits of regional initiatives and their likely impacts on the multilateral trading system. Some have argued that such agreements are stepping stones towards multilateral trade liberalisation. Others, however, fear that these initiatives could involve more trade diversion than trade creation and may serve as 'stumbling blocks' for global free trade. Despite a number of theoretical and empirical contributions in recent years, the effects of regional trade agreements on trade in agri-food products have not been properly explored in the existing literature. An attempt is made in this study to analyse trade creation and trade diversion effects of NAFTA and the EU on trade in the six selected agri-food products from 1985 to 2000. An extended gravity model with relevant dummy variables was used as analytical tool to determine the trade creation and trade diversion effects of the selected RTAs. A pooled cross-sectional time series regression was estimated using generalized least square methods for three-year intervals for each of the selected commodities. The results suggest that the EU and NAFTA have served to boost trade significantly among members than with the rest of the world. The results also suggest that the formation of NAFTA and the EU may have reduced the degree of openness to trade in agrifood products with the rest of the world.