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Evaluating growth volatility susceptibility within regional free trade agreements
Author(s) -
Edwards Jeffrey A.,
Ginn Vance
Publication year - 2011
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.411
Subject(s) - volatility (finance) , economics , spillover effect , free trade agreement , volatility swap , financial economics , international economics , monetary economics , free trade , implied volatility , macroeconomics
It is believed by many that regional free trade agreements (RFTAs) are beneficial to a nation's economy. This paper compares the effects that trading partner volatility has on countries engaged and not engaged in RFTAs. What we find is that (1) whether a country is in an agreement or not, there is a statistically significant volatility spillover from trading partner economies, (2) being in an RFTA does not insulate oneself from non‐RFTA volatility, and (3) participating in an RFTA actually increases susceptibility to volatility from other RFTA countries. We conclude that in terms of volatility susceptibility, it may be harmful for a country to enter into an RFTA. Copyright © 2010 John Wiley & Sons, Ltd.