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Abstract

Economists have recently begun trying to explain that pattern of Regional Trade Agreement (RTA) formation around the world. This paper adds to the developing literature by taking into account the fact that many of the RTAs signed are not effectively implemented. The analysis proceeds in two steps: the gravity model is used to establish which RTAs are effectively implemented, in the sense that they positively and significantly increase trade flows between member countries compared to the flows predicted by the gravity model; second a hypothesis is tested about the pattern of effective RTAs – that successful RTAs are found between pairs of countries which send a large share of their exports to each other's markets. Convincing evidence is found to support this hypothesis, including evidence that export interest from one partner alone does not improve the probability of an effective RTA.

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