Trade Agreements Beneficial

Over the past two decades, the number of trade agreements has increased. Economists have examined in detail the economic consequences of these agreements and have focused on their effects on variables such as trade flows, productivity, firm exit and entry, employment, and wages (e.g. B Pavcnik 2002, Trefler 2004, Baier and Bergstrand 2007, Topalova and Khandelwal 2012). The academic literature provides several explanations as to why governments might be willing to compromise their sovereign rights to dictate their trade and economic policies. There are two important snacks here. First, trade agreements are not the same as unilateral liberalization and the arguments in their favor are not based on the belief in the optimality of free trade. It is an exchange of market access, a harmonisation of the conditions of competition on one market in exchange for harmonisation on another. Second, the first multilateral trade agreements reduced trade barriers to their high level in the early post-war years and to the established trade rules that allowed trade to flourish in the era of globalization. Broad multilateral agreements have also played a supporting role in deterring protectionist responses to the shocks of globalization that have followed. But recent bilateral and regional agreements, including NAFTA, have played only a minor role in the growth of global trade. Reforms in emerging markets are a much more important cause of trade expansion. Our overall results mask a great heterogeneity of therapeutic effects between EU countries, trading partners and types of trade agreements.

For example, higher-income EU countries (Belgium/Luxembourg, Ireland, the Netherlands and the United Kingdom) recorded significantly higher quality gains than other EU countries. For the group of low-income EU countries (Greece, Portugal and Spain), the effects of trade agreements have had an almost exclusive impact on lower prices and not on quality improvements. By taking action to promote the prices, diversity and quality of EU12 imports, we will then assess how they have changed with the implementation of trade agreements. We compare the evolution of the three variables for the group of countries that have signed trade agreements with the EU to a control group of countries that have not. The evidence indicates that the recent agreements have had much more modest effects than those on both sides of the debate would have us believe. Trade agreements have become a lightning rod, perhaps because they are the only part of the globalization process that governments believe they control. But they explain only a tiny fraction of the trade growth that has taken place in recent decades. The experience of rapid globalization is mainly due to the emergence of once stagnant economies such as China and India, as well as huge improvements in transport and communication technologies. Countries can join regional trade agreements so as not to be excluded….