Sign here, please! On developing countries’ market access conditions in regional trade agreements

• Author: Frederik Stender
• DOI: http://doi.org/10.1111/rode.12591
• Published date: 01 August 2019
• Date: 01 August 2019

Rev Dev Econ. 2019;23:1347–1367. wileyonlinelibrary.com/journal/rode

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1347

© 2019 John Wiley & Sons Ltd

DOI: 10.1111/rode.12591

REGULAR ARTICLE

Sign here, please! On developing countries’ market

access conditions in regional trade agreements

FrederikStender

Frankfurt School of Finance and

Management, Frankfurt am Main, Germany

Correspondence

Frederik Stender, Frankfurt School of

Finance and Management, Adickesallee

32–34, 60322 Frankfurt am Main,

Germany.

Email: f.stender@fs.de

Abstract

Have regional trade agreements (RTAs) improved market ac-

cess conditions for developing countries? Employing a meas-

ure expressing effective tariff margins and using

disaggregated panel data for a sample of 45 developing coun-

try exporters, 60 export destinations, and the period between

1991 and 2015, it is shown that this question can generally be

answered in the affirmative. Although the effect is estimated

to be moderate, RTAs might thus be an important long- run

building block in the United Nations 2030 Agenda for

Sustainable Development in order to increase developing

countries’ participation in world trade. On closer inspection,

however, for the countries included in the sample, there is

considerable variation depending on the choice of integra-

tion partners and economic sectors. More specifically, mar-

ket access improvements cannot be found for African

economies in South–South agreements and developing coun-

tries engaging formally with the European Free Trade

Association (EFTA) or the Republic of Korea, while leading

industrialized nations are reluctant to grant improved market

access to developing countries in RTAs especially in capital-

intensive (high- productivity) manufacturing sectors.

JEL CLASSIFICATION

F13, F14, F15

KEYWORDS

North–South integration, regional economic integration, South–South

integration, sustainable development goals, tariff margin

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INTRODUCTION

In their widely acclaimed paper, Kee, Nicita, and Olarreaga (2009) explain in detail that developing

countries not only use trade policy more restrictive than do developed countries, but their exports

are also subject to generally higher trade impediments. Considerable tariff reductions for developing

countries have nevertheless been initiated over the past 25 years, and the well- established empirical

nexus between improved market access conditions (expressed in terms of preferential tariffs) and ex-

port growth (see, for example, Fugazza & Nicita, 2013; Fugazza & McLaren, 2014; Nicita & Rollo,

2015) suggests that this could have stimulated (at least parts of) the significant increase in their share

in world exports from 25.2 percent in 1991 to 53.5 percent in 2016 (UNCTAD, 2017).

Not all developing countries, however, participate equally in world trade and the success story of re-

cent times hides a high degree of disparity among developing countries. While developing Asia managed

to expand its share of world trade from 18.2 percent in 1991 to some 36 percent in 2016, other developing

regions continue to languish at lower levels. At the bottom end, developing Africa, home to some of the

world's least developed countries, continues to stagnate at a share of 2–3 percent over nearly three de-

cades (UNCTAD, 2017). Although low shares in world trade may arise from various sources which often

demand comprehensive structural reforms, this development prompted the United Nations to include a

call for duty- free market access by 2020, in particular for the least developed countries, in their 2030

Agenda for Sustainable Development (commonly referred to as Sustainable Development Goals) in order

to significantly stimulate developing countries’ exports (United Nations, 2015).

This paper assesses regional trade agreements (RTAs) as a policy option for developing countries

to improve market access conditions in export destinations. Given the extensive utilization of RTAs

especially since in the early 1990s, this trade policy provides a solid ground for empirical analysis.

Table 1 displays the temporal evolution of RTAs between 1958 and 2017. Notably, while by 1991

there were eight RTAs with membership exclusively among developed countries (North–North (NN)

agreements) compared to five with developing country signatories (North–South (NS) and South–

South (SS) agreements), proportions have changed substantially in favor of the latter since then. Of

the 249 RTAs concluded between 1991 and 2017, only 33 are NN agreements while 216 are either

NS or SS agreements (World Trade Organization (WTO), 2017).1 By the end of 2017, NS agreements

accounted for 45 percent of all RTAs. Even though more moderate in their growth rate, a similar path

has been followed by SS agreements, leaving NN agreements clearly outnumbered today.

TABLE 1 Temporal evolution of regional trade agreements, 1958–2017

Years

Number of

Newly

Established

RTAs

Cumulative

Total of

RTAs

Number of

North–North

Agreements in

Cum. Total (%)

Number of

North–South

Agreements in

Cum. total (%)

Number of

South–South

Agreements in

Cum. Total (%)

1958–1973 8 8 6 (75.0) 0 (0.0) 2 (25.0)

1977–1990 5 13 8 (61.5) 2 (15.4) 3 (23.1)

1991–1995 20 33 12 (36.4) 5 (15.2) 16 (48.5)

1996–2000 35 68 15 (22.1) 17 (25.0) 36 (52.9)

2001–2005 49 117 22 (18.8) 41 (35.0) 54 (46.2)

2006–2010 72 189 29 (15.3) 79 (41.8) 81 (42.9)

2011–2017 73 262 41 (15.6) 118 (45.0) 103 (39.3)

Note. Own computation and illustration. Only FTAs and CUs are considered.

Data source: World Trade Organization (2017).