I Just Read 296 Trade Agreements

Until now, conventional gravity-equation studies of trade agreements and international trade have assumed all agreements to be equal. This is witnessed by the use of binary variables to account for the presence of such economic integration agreements (EIAs). Although convenient, this instrument fails to account for potential differences between EIAs. Identifying what drives these differences may be crucial to understanding why some EIAs are more effective in promoting trade than others. This paper opens the proverbial black box and takes stock of the provisions covered by almost all EIAs in the world economy to date. This approach provides a new means to quantify the het­erogeneity of trade agreements and to study their effects on international trade. The possibility of using EIAs’ content to construct an index of trade regulation is explored, as well as an investigation of the determinants of comprehensive trade agreements. The paper also uncovers an important finding in the debate on whether EIAs threaten to undermine or may actually complement the WTO. I find that virtually all EIAs build, to a large extent, on existing WTO policies. A minority of agreements contains pro­visions that are not currently part of the WTO’s mandate. As such, an analysis of what is written in EIAs shows that these agreements are—being firmly rooted in WTO policy—complements, not threats, to the multilateral trade system. However, opening this black box also reveals that not all provisions are good for trade. In fact, some provi­sions are found to actually decrease trade, which stresses the importance of addressing both the purpose and context of individual provisions and agreements in EIA-based research.