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How FTAs Affect Income Levels of Member Countries
Author(s) -
Sohn ChanHyun,
Lee Hongshik
Publication year - 2006
Publication title -
world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2006.00866.x
Subject(s) - convergence (economics) , economics , member states , european union , international economics , panel data , international trade , affect (linguistics) , econometrics , macroeconomics , linguistics , philosophy
The purpose of this paper is to analyse whether FTAs cause the income levels of member economies to converge or diverge. Although existing studies predict the possibility of convergence among FTA members to a certain degree, they fail to provide definitive evidence. By using the concept of accelerating convergence , this study aims to estimate the pure convergence effects of FTAs, separate from the conventional notion of income convergence, so‐called β ‐convergence. The neoclassical model of economic growth has been extended to incorporate varying steady states for an open‐economy framework. Applying the system GMM method to a dynamic panel of data consisting of major FTAs – comprising the European Union, NAFTA, Mercosur and AFTA, and encompassing the cases of launching an FTA, expanding membership or deepening FTA integration – we find considerable evidence for the income convergence effect of FTAs.