The number of free trade agreements

Since the 1990s, the number of free trade agreements has significantly increased, and there are numerous causes for the development of such trade agreements (Hur & Park, 2012). Most American countries have reinterpreted their development policies in recent decades, changing from import substitution regimes to policy fostering integration. This was accomplished through the global economy via exports and Foreign Direct Investments (De Hoyos & Iacovone, 2013). This transition has been accompanied by favorable effects on economic development and trade liberalization.

The three topics are related in the sense that they all discuss economic expansion, global development, and international trade. They describe how trade increases the development and growth of economy between the trading countries, agreements made among those countries and economic performance to such trading countries (De Hoyos & Iacovone, 2013).

Economic Questions Addressed and the Government Policies

In this paper, a number of questions, which cut across the economic spheres, are addressed. These questions are the general outline of the world’s trade approaches. The first question is: how is the impact of free trade on the growth of the economy empirically characterized? Second, what is the significance of free trade on the regional countries? Finally, what are the forms of economic trade among countries under the free trade policies? This approach, however, is different from those that were applied during the past studies (Liu, 2016). There are two ways in which these studies differ. First, the existing experiential literature relates the growth of an individual’s country to the openness of that country and the openness of trade is often built as an index reflective of that individual country on trade liberalization. In conjunction with these theories, the state members which have similar degree of openness are bound to face a number of impacts of that openness in form of economic growth and development. This is dependent on the degree of openness of the trade partners which is based on bilateral free trade agreements system (Hur & Park, 2012). Since bilateral free trade agreement is made up of a pair of countries, it can be considered as a sign for openness, especially for those states involved in that agreement. In evaluating their effects, a binary dummy dictates whether a country has free trade agreement or not and then the growth rate of countries involved is also considered. It is believed that the exercise to examine the free trade agreement effects on both the trading countries’ growth performance is important in the rising trend of FTAs.

Relative Estimation Methods

The engagement of free trade agreement is also considered as “treatment” – a terminology used in the matching literature that proposes non-parametric matching to help examine the effects of free trade agreement on development and growth of a country. Also, other questions raised by the non-parametric matching approach is that, examine the difference in growth of the economy of a country couple when they have the free trade agreement, as compared to the case when they do not have the free trade agreement? In assessing the difference, this question is usually addressed by the regression analysis (De Hoyos & Iacovone, 2013). This is evident from the major problem demonstrated in misspecification, which is caused due to non-linear correlation among variables and nonrandom selection problems.

Trade literature has started to use econometric approach (Hur & Park, 2012). This literature has never been utilized in the literature on economic growth and trade. After showing that the FTA exerts a positive and significant effect on the rate of economic growth in linear regression, a description of a dataset is provided to show how linear regression model is being affected by non-random selection and misspecification issues. Here, the problems due to econometric in linear regression are vividly indicated even though the trade openness index is replaced by the FTA dummy variables (Hur & Park, 2012). The main econometric methodology used in this study is the non-parametric matching approach.

Also, there are empirical results provided regarding the impacts of FTA on the growth of per capital GDP of the member states using the matching method. Despite the fact that myriad countries have formed FTAs or consider FTAs, the consequences shows that the ultimate effects of FTA on growth are still insignificant. This is because the GDP increase rates before and after the introduction of the FTAs. Consequently, the data analyzed is cross-sectional, it cuts across a number of countries across the globe on the economic scale. The data analyze the economic challenges, progress, and the trade among countries in given regions. The data sources are the WTO’s report of Trade Agreements, FTA data base, and the Custom Unions (De Hoyos & Iacovone, 2013). The data is analyzed as per regions across the globe. The trade region data is analyzed every year to ensure the consistency in the progress especially in the North America region.

The Results of the Articles and Details of the Data

The effects of trade agreements on the development and the growth of economy are studied provided with existing literature on both the economy and trade. There are a number of benefits of trade agreements in particular. First, most studies on trade and economic growth make use of trade policies and trade volumes which are the outcomes of various approaches to trade liberalization (Hur & Park, 2012). Second, there must be something about the agreement that benefits members beyond just trade. Analysis on this paper covers both the effects of trade agreements on growth through trade and their effects through many other nontrade channels.

Considering the data, it was observational from a number of countries or member states that belonged to the NAFTA or the FTA. Form the member states, the data obtained was determined from the records, the website and the observational trends in the analysis of the progress of the trade unions. Also, NAFTA leads to the development of an approach which can untangle various avenues in which the global market is firmly integrated through the international trade may affect the productivity of the member states. The empirical analysis is based on Mexico firm level data from the years 1993-2002. This was the period of integration that covers a geographical area between the US, Canada, and Mexico within the North America free trade agreement – NAFTA (Liu, 2016). NAFTA is defined as a vital process that aimed at economic integration geared towards tariff reduction and also rules that govern the foreign trade and investments among states (Hur & Park, 2012). The data was treated for a group of countries that cut across North America. The researchers used the regression method that analyzed the data as per a number of econometric models. For the majority of pragmatic studies, among these articles, parametric model that uses cross section has been adopted. The linear regression approach has a number of shortcomings in assessing the effects of free trade on the basis of trade models. In addition to that, econometric problems arise when the approach is used. The models dwelled majorly on the government information on analyzing the information.

The simulations play a key role in answering the research questions. In this regard, the research of the study vividly answers the questions raised in the research about the economic state based on the trade allies within the states region of jurisdiction. Hence, the articles play a vital role in the analysis of the challenges, rules and regulations, and the reforms in the Regional Trade Agreements (De Hoyos & Iacovone, 2013).

Policy Implications

The policy implication of the results of this study shows that NAFTA influenced the rate of production of Mexican plants. The effect of the trade reforms is the key stand of the integrated firms. In comparison to the last results, the relationship between productivity and the exports is analyzed (Hur & Park, 2012). There are two approaches that can be used to examine the effects of NAFTA on firm-level productivity. First, link tariff decrease with firm-level productivity while monitoring other potential impacts and secondly, compare the variance of efficiency growth rate between integrated and non-integrated firms prior to and post the reforms controlling for observables and unobservable fixed effects. All the approaches named have advantages and disadvantages that dictate the level of trade and the measures undertaken by the state countries.

NAFTA’s level of production cannot only be identified through tariff variance method, however, import competing avenues can be used to identify the information that leads to the post reforms decline in the tariffs. A reduction in import tariff is anticipated to elevate alien competition for Mexican plants. Recent studies use tariff variance method to examine the links between labor productivity and NAFTA using the import-competing channel. The objectives of the econometric approach are geared towards identifying the correlation between NAFTA and its impact on firm-level productivity (Liu, 2016). In order to achieve this, productivity index is used, which stems from the hourly addition especially from the productivity labor analysis. The results of the study presented apply to most of the firms despite the error in the method of application and analysis of the trade environment.

In the previous studies, the trade integration status has been able to be identified at the firm level and not at the sectoral level. Also upgrading on the earlier study that analyzes the effect of NAFTA, an attempt has been made to identify an overall effect of NAFTA and not just the impact of tariff changes (Hur & Park, 2012). In addition to that, the simulation of the model is based on the first set of models which gives good results and robustness in using all firms in the samples to run OLS for four specifications. All the results presented here correct for potential autocorrelation across all firms using clustered-robust standard error at first level.

Strength and Weaknesses of the Results

The internal strengths are based on the significance of the RTAs on the state countries involved in it. Trade has been boosted in terms of the reduction in the taxes and tariffs levied on the goods and services offered. This has increased the trade and consequently the trade margins internally. In addition to that, the unity among the states has been intensified to a high degree. However, the internal weaknesses crop up due to biasness in a number of ways (Hur & Park, 2012). The biasness has resulted in difference in interests among the different members states. The most common type of bias is the one based on the lines of states with abundant resources versus the ones with poor resources. On the other hand, the external strengths are that it helps in enhancing the relationship between states and this has boosted the external bilateral trade. In the contrast, the external weaknesses are the large cost variance between the most stable and efficient countries in the region. This affects trade and inter-industry trade in the member states in the region (Liu, 2016).

Conclusion

Considering all the three articles, the results of the growth in the trade agreements is different depending on the article. However, in general there is an exponential growth in the level of trade agreements registered in the region. This is has revealed the general effects of trade agreement on the growth of a nation sectors and economic index.

References

De Hoyos, R.E., & Iacovone, L. (2013). Economic Performance under NAFTA: A Firm-Level Analysis of the Trade-Productivity Linkages. World Development, 44, 180-193.

Hur, J., & Park, C. (2012). Do free trade agreements increase economic growth of the member countries? World development, 40(7), 1283-1294.

Liu, X. (2016). Trade Agreements and Economic Growth. Southern Economic Journal, 82(4), 1374-1401.