Does A Regional Trade Agreement Lessen or Exacerbate Growth Volatility? An Empirical Investigation
IMF Working Papers, July 28, 2015
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- Does A Regional Trade Agreement Lessen or Exacerbate Growth Volatility? An Empirical Investigation
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Bibliographic details
- Authors: Kangni R Kpodar, Patrick A. Imam
- Published: July 28, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513540443.001
Overview
- Paper assesses how regional trade agreements (RTAs) impact growth volatility on a worldwide sample of 170 countries with data spanning the period 1978-2012.
- Central empirical finding: RTAs are consistently associated with lower growth volatility, after controlling for trade openness and other determinants of growth volatility.
- Authors: Kangni R Kpodar, Patrick A. Imam
- Date: July 28, 2015
Data and Methodology
- Sample: 170 countries.
- Period covered: 1978-2012.
- Main empirical approach: regressions that control for trade openness and other determinants of growth volatility.
- Working Paper series: Working Paper No. 2015/177, Pages: 37.
Key Findings
- RTAs are consistently associated with lower growth volatility.
- The stabilization association holds after controlling for trade openness and other determinants of growth volatility.
- Regression results indicate selection effects: countries that are more prone to shocks are more likely to join a RTA, in particular with countries with relatively less volatile growth, additionally enhancing the stabilization effect.
- Mechanisms suggested (identified in the paper):
- Enhanced policy credibility.
- Improved policy coordination.
- Reduced risk of conflicts.
- Subject areas listed: Exports, Imports, International trade, Regional trade, Terms of trade, Trade agreements.
- Keywords preserved from source: affect growth volatility, Exports, Global, growth rate, growth volatility, Imports, mega-RTAs agreement, Regional trade, regional trade agreement, RTA dummy variable, RTA member, RTA member country, standard deviation, Terms of trade, Trade agreements, trade creation, trade openness, trade partner, West Africa, WP.
Interpretation and Mechanisms
- Despite concerns that trade openness through RTAs can heighten exposure to shocks—particularly via increased product specialization—the net empirical effect in this sample is stabilization of growth volatility.
- The paper emphasizes that stabilization operates through institutional and policy channels (policy credibility, coordination, conflict reduction) and through partner selection effects (joining with less volatile partners).
Policy Implications
- Empirical evidence in this study suggests that RTAs can play a role in reducing growth volatility for member countries.
- Consideration of partner volatility when forming RTAs may amplify stabilization benefits, since countries prone to shocks appear to join RTAs with relatively less volatile countries.
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- _wp15177 - Variable Definition and Sources