Economists and politicians are involved into significant debate on choosing the best approach between regional trade agreement and global trade liberalization. The major point of argument is to identify which strategy is better for various countries as well as global economy (COLLINS, 2010). Additionally, several studies have emphasized on analyzing whether these two approaches are contradictory or complimentary.
From the late 20th century, the wave of globalizations has assisted in abolishing the barriers of the international trade. Empirical studies have been conducted for indentifying the difference in two approaches: regional trade agreement and global trade liberalization (DAVIS, 2011). It has been observed that implementation of the regional trade agreements have significantly contributed in increasing the trade among their members. In other words, the intra group trade has enhanced by the regional trade agreements (Thirlwall, 2000). However, it has been found that in case of regional trade agreements, intra group trade contributes very little of the total trade. The share of intra group trade is significantly lower against the total export, but it has managed to achieve continuous growth over the period. Hence, it can be found that regional trade agreement is one of the most important driving forces for increasing the intra group trade (Vamvakidis, 1998).
In case of most of the regional trade agreements, the share of intra group trade has been significantly small. Consequently, the effect on growth was not prominent. It has been observed that the effort of the regional trade agreements was not successful in terms of creation of large regional markets (Park, 2006). It had wasted the valuable tome for broader liberalization. It has been observed that in most of the cases of regional trade agreement, the average intra group trade shares have been very poor. However, the statistics have been found to be slightly different in case of EU.
While the small developing nations join a regional trade agreement, which will majorly include the small developed countries. It has been observed that most of the countries have similar economy of the neighbor countries (DAVIS, 2011). Very few developing nations are in the same region with the developed nation. Consequently, the intra trade share will be low. Studies have demonstrated that most of the regional trade agreements have been prominent among the small developing economies having higher protection. On the other hand, empirical studies have demonstrated that, in case of both short run and long run growth has been faster after the broader global trade liberalization (Mukerji, 2009). It has been observed that short term and long term growth in the nations are higher in case of the global trade liberalization (Di Caprio, 2011). Short terms and long term impacts are positive as well as statistically significant in case of the broader international liberalization. The nations will grow in a faster way in short and long run after these nations open their market without discrimination to the international trade (Baier and Bergstrand, 2007).
Baier, S. and Bergstrand, J. (2007). Do free trade agreements actually increase members' international trade?. Journal of International Economics, 71(1), pp.72-95.
COLLINS, S. (2010). Regional Trade Agreements and Democracy Promotion: Measuring the Influence of Democracy Requirements in Regional Trade Agreements. Politics & Policy, 38(4), pp.737-764.
DAVIS, G. (2011). Regional Trade Agreements and Foreign Direct Investment. Politics & Policy, 39(3), pp.401-419.
Di Caprio, A. (2011). Backseat Drivers: The Political Economy of Trade Liberalization. International Studies Review, 13(2), pp.322-324.
Mukerji, P. (2009). Trade Liberalization And The Extensive Margin. Scottish Journal of Political Economy, 56(2), pp.141-166.
Park, I. (2006). East Asian Regional Trade Agreements: Do They Promote Global Free Trade?. Pacific Economic Review, 11(4), pp.547-568.
Thirlwall, A. (2000). Trade Agreements, Trade Liberalization and Economic Growth: A Selective Survey. African Development Review, 12(2), pp.129-160.
Vamvakidis, A. (1998). Regional Trade Agreements Versus Board Liberalization: Which Path Leads to Faster Growth? Time-Series Evidence. IMF Working Papers, 98(40), p.1.