Regionalism vs Multilateralism: Empirical Research

One of the most interesting parts of Richard Baldwin’s most recent paper (pdf) is his historical narrative arguing that, contrary to some critics’ notion that PTAs exploded onto the international trade scene in the 1990s, “multilateral and regional liberalisation proceeded in tandem since 1947.”

He uses this history to argue that regionalism can be structured to complement multilateralism. In regards to the Uruguay Round, Baldwin writes:

Plainly the 1980s show no sign of unilateralism, regionalism and multilateralism being substitutes. 1986 saw i) the Uruguay Round launched, ii) a major step in European regional integration (the SEA), iii) a major step in North American integration (CUSFTA talks). The juggernaut approach explains this by noting the reshaping of the political economic landscape induced by trade liberalisation in the 1970s would have lower resistance from import-competing firms to MTNs and RTAs while the expansion of export sectors would have raised political support for both. Moreover, European and North American regional integration, the SEA and CUSFTA, would bolster trans-Atlantic discrimination and this heightened the attractiveness of an MTN to both parties.

Some empirical evidence suggests that regionalism and multilateralism are substitutes at the tariff line level, however. In “PTAs as Stumbling Blocking for Multilateral Trade Liberalization: Evidence for the US,” (CEPR) Nuno Limao examines the Uruguay Round of negotiations and finds:

The U.S. multilateral tariff reductions in PTA goods were smaller than those in similar goods not imported from PTA partners. On average an exporter to the U.S. that did not belong to one of its PTAs received about 52% the benefit (in terms of price increases) if it exported any PTA good instead of a similar non-PTA good. This effect is even stronger if the good was exported by all PTAs or was an important export for a PTA partner.

He has another paper with Baybars Karacaovah that finds similar results for the European Union in the last two GATT/WTO rounds.

A story synthesizing these two arguments might suggest that preferential trade has negative impacts upon third parties, which causes them to seek multilateral liberalization. But these MTNs are more successful in liberalizing product lines where trade diversion did not occur. In this story, regionalism does some damage, but it spurs more trade creation than diversion by reenergizing the multilateral talks.

What other available empirical research might flesh out our understanding of the relationship between regionalism and multilateralism?