Do Free Trade Agreements Actually Increase Members` International Trade

The customs association shares with modern trade agreements and professional associations the characteristic of a successive extension of membership. Although 1834 was the official date of the beginning of the German Customs Association, the trial took place during most of the 19th century. In particular, given that the number of members of the customs association under Prussia`s leadership has increased, some states were concerned that a stay outside the customs association would significantly reduce their access to the maritime coast of northern Germany and thus to a large part of international trade (Keller and Shiue 2008, Ploeckl 2010). The customs association`s external border has imposed higher costs on southern German states than those in the north, which have not had to cross the customs border to negotiate internationally from German shores. We note that this latter method of estimation – which takes into account the finalization between price convergence and the date of membership of members – provides an estimate of the impact of the trade agreement, several times greater than the naïve estimate. The reason for this big difference is that the naïve estimate does not take into account the fact that the states that joined the customs union early are probably different from those that would join later and that the differences could systematically alter the extent of price convergence. A reasonable assumption is that higher-yielding trade agreements are established in terms of the commercial transactions they generate before lower-yield agreements. If this were the case, a naïve regression approach that would bring all these agreements together would overstate the real effect of the trade agreement. However, it is not clear that the return to Nicaragua, for example, which had reached an agreement with the EU in 2013, was less than the return of Chile, which had reached an agreement with the EU ten years earlier. So we look at an environment in which the differences between when and how some countries choose to join. This allows us to show that they play an important role in assessing the impact of a trade agreement on trade (Keller and Shiue 2013). For more than forty years, the gravitational equation has been a trotter for the transnational empirical analysis of international trade flows and, in particular, the impact of free trade agreements (FTAs) on trade flows.

However, the gravitational equation is subject to the same econometric criticisms as previous interprofessional studies on U.S. customs and non-tariff barriers and multilateral imports to the United States: trade policy is not an exogenous variable. The authors are economically interested in the endogenousness of free trade agreements with variable instrumental (IV) techniques, control techniques (CF) and panel data techniques; Approaches IV and CF do not adapt well to endogenicity, but a panel-based approach does. The economic record of the endogenous FTA variables yields striking empirical results: the effect of free trade agreements on trade flows has increased fivefold. Viner (1950) found that “generalizations about the origin, nature and consequences of tariff uniformity are primarily or entirely based on the German experience [i.e. Zollverein]”. We now know that the era of customs associations, beyond its importance as a trade agreement, is giving lessons on the impact of economic harmonisation on political cohesion between the states that are at the centre of today`s political debate, not only in Europe, but also at the global level. In our analysis of the 19th century case in Germany, we understand the motivations for adhering to a specific trade agreement – the customs association – at a level of detail not only unprecedented, but also geared towards the specific historical context of the agreement.