Dissecting the Trade Effects of Europe’s Economic Integration Agreements

Dissecting the Trade Effects of Europe’s Economic Integration Agreements

This paper systematically studies the trade effects of Economic Integration Agreements involving the European Union. We thoroughly disentangle the ex post effects of these agreements by analyzing various sources of heterogeneity and controlling for potential endogeneity and multilateral resistance. Our results confirm the general trade-enhancing impact, but point to an asymmetric effect on European exports and imports. While free trade agreements strongly increase import competition in the European Union market, their effect on European exports is much more complex. Economic Integration Agreements enhance trade by more product differentiation (the extensive margin), but reduce the trade intensity (the intensive margin) simultaneously. Nevertheless, the cumulative effect over time is positive for imports, as well as exports. Moreover, the trade effects differ across European Union member states and across agreements. In particular, the integration depth and the economic rationale matter.