Latin American integration and the survival of trade relationships

Abstract

In a previous work, Besedes et al. (2015) studied the effects of trade agreements on the survival of trade relationships. Their main results were that trade agreements significantly increase the survival of trade relationships which had already started when the agreement takes place. Moreover, they find that these agreements increase the hazard and reduce the initial volumes for those that start afterwards.These results, however, may not be homogeneous across regions as aggregation may hide different reactions of trade to economic integration agreements (EIAs).In the present paper we use annual trade data at the 5-digit SITC level for Latin America exports to over 150 countries from 1962 to 2009. We analyze whether the effects of EIAs on trade survival, initial volumes of trade and export growthare the same as those described for the whole world (mostly, they are not).As our main contribution, we examine if these effects differ depending on the required depth for an agreement to be considered as an EIA (they do).We also test if the quality of trade agreements, as measured by Kohl et al. (2016) has an impact on the survival of trade relationships (it does).