Regional Trade Agreements Versus Board Liberalization: Which Path Leads to Faster Growth? Time-Series EvidenceWP/98/40-EAWP/98/40 Regional Trade Agreements Versus Broad Liberalization: Which Path Leads to Faster Growth? Time-Series Evidence Athanasios Vamvakidis Should a closed economy liberalize by opening trade to all countries, or discriminate by participating in regional trade agreements (RTAs)? Based on a data set for the period 1950-92, this paper estimates the growth performance of countries that liberalized to world trade (nondiscriminatory, or broad liberalization) or joined an RTA (discriminatory liberalization). Time-series evidence shows that economies have grown faster on average after broad liberalization, both in the short and long run, but not after joining an RTA. The impact of participation in an RTA is significantly negative for most empirical specifications. In addition, economies have higher investment shares after broad liberalization, but lower ones after joining an RTA. The results show that the impact of openness on growth is direct and indirect (through higher investment). This contrasts with the literature that uses cross-country evidence and finds only an indirect effect. The results suggest that closed economies that want to open their markets to free trade and face the dilemma of global versus regional integration should choose the global path. |