In a simplified version of the gravity model, appropriate dummy variables have been introduced to analyse the effects of both trade creation and trade diversion by three economic organizations, the European Economic Community (EEC), the Latin American Free Trade Association (LAFTA) and the Council of Mutual Economic Assistance (CMEA), for the period 1960-94. Five-year intervals are the main subject of measurement. The results show that both trade creation dummies and trade diversion dummies have statistically significant coefficients, which show the appropriateness of this new approach. The trade creation effect and trade diversion effect of each institution are proved to be generally weakening during the 1990s. It is also observed that each Organization has a distinctive international trade character. For Japanese trade, a similar approach is used to analyse nonaligned trade by Japan, with particular interest in the effects of these three institutions on trade with Japan. The result is that there is no strong evidence that the EEC and the LAFTA trade with Japan any more or less than the hypothetical level predicted by basic explanatory variables, while the CMEA increased its trade with Japan up to the hypothetical level during the analysis period.
This paper investigates economic and political factors which explain the presence or absence of preferential trade agreements (PTAs). A model of three countries with imperfect competition markets is employed for theoretical analysis of political economy. The validity of theoretical results is tested by econometric analysis with a logit model. It is shown that countries with similar incomes are more likely to form PTAs, and that governments with low quality of governance have little incentive to form PTAs. Copyright � 2006 The Author; Journal compilation � 2006 Blackwell Publishing Ltd.
This paper investigates whether the Global System of Trade Preferences among developing countries (GSTP) achieves its intent to increase the trade of capital goods between member countries. For this purpose, trade data disaggregated by the degree of commodity differentiation and various GSTP regional dummies are employed in a gravity equation. Estimation results say that the value of trade between GSTP member countries has increased significantly since the formation of the GSTP in 1989, and the trade of differentiated commodities has increased remarkably compared with other commodities. Therefore, it can be asserted that the mission of the GSTP has been accomplished successfully.
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