The Economic Impact of Deepening Trade Agreements

This paper explores the economic impacts of preferential trade agreements, conditional on their level of ambition. We cluster 278 agreements, encompassing 910 provisions over 18 policy areas and estimate the trade elasticity for the diﬀerent clusters. We then use these elasticities in a series of general equilibrium counterfactual situations for endowment economies, revealing that deepening existing agreements (the intensive margin of regional integration) could boost world trade by 3.9 percent and world GDP by 0.9 percent. The expected gains from deepening agreements within or across regions vary depending on the initial depth of agreements and the size of regional markets. the impacts of deepening trade agreements. Based on a clustering of 278 comprising 910 grouped in 18 policy we shown PTAs of higher ambition are associated with a much larger trade elasticity to PTAs. This ﬁnding conﬁrms that using an average eﬀect of PTAs, disregarding the depth and content of trade agreements, is misleading. We then simulated a series of full general equilibrium counterfactual situations for endowment economies, revealing the economic impacts of deepening all existing PTAs, and of deepening trade agreements within regions and between regions. These exercises focusing on the intensive margin of PTAs suggest that deepening trade agreements can have signiﬁcant eﬀects on trade and GDP. The eﬀects of deepening trade agreements within and between regions vary across countries and world regions depending on the initial depth of trade agreements and on the size of regional but are largely positive. Potential diﬀerences in collective preferences between regions, which make negotiating deep trade agreements more diﬃcult, suggest that for most countries the low-hanging fruits may be in deepening trade agreements within regions.