The World Trade Organization (WTO) is designed to promote trade among its members on the basis of non-discriminatory liberalization. However, nations often pursue free trade agreements (FTAs) that extend preferential treatment to a select group of members.
The lack of progress in the WTO’s Doha negotiations and the rapid increase of FTAs raises the question whether the WTO is still the most suitable institution to promote free trade.
'Only 30 percent of FTA's actually boost trade'
The thesis of Tristan Kohl explores the impact of international institutions on world trade for the period 1948-2007. Using the gravity equation and a new, extensive dataset, we find that WTO membership increases trade. However, the gains depend on members’ ability to make extensive commitments. On the whole, FTAs are also good for trade, but the agreements vary in effectiveness: 40 percent have no discernable effect, 30 percent cause a decline in trade and only 30 percent actually boost trade.
A major contribution of this research is that he develops an index that accounts for the legal provisions contained in 296 unique FTAs. Surprisingly, most FTAs are firmly grounded in WTO policy and often pursue even more extensive collaboration than agreed at the level of WTO. Moreover, he shows that comprehensive agreements containing legally binding provisions have greater trade-promoting effects than agreements with few and/or non-enforceable commitments to liberalize trade.
Taken together, Kohl finds that the WTO and FTAs are complementary institutional arrangements that boost world trade, provided that the commitments to pursue economic integration are comprehensive and legally enforceable.
Tristan Kohl (South Africa, 1983) studied economics in Groningen. He conducted his PhD research at the Faculty of Economics and Business and will be awarded his PhD on 18 October (12.45pm). Thesis supervidors are prof.dr. S. Brakman and prof.dr. J.H. Garretsen. The thesis title is: Trade agreements galore. Who, what, when, where, why, how and how much? Kohl is assistant professor at the FEB.
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