The purpose of this paper is to examine the effects of a regional trade agreement among a group of small island developing states on trade creation and trade diversion.
An augmented gravity model and panel data are used to estimate the trade creation and trade diversion effects. The generalized method of moments technique is used to account for possible endogeneity. Country pair and time fixed effects are also included.
The regional trade agreement had a positive effect on intra-regional trade creation, but there was no significant diversion of imports from extra-regional trade partners.
Small developing economies can benefit from regional trade agreements (RTAs) among themselves. The trade diversion effects of such agreements are likely to be limited.
To the best of authors’ knowledge, this is the only paper which investigates the impact of RTAs among small island developing states.
Freckleton, M. and Whitely, P. (2020), "Can trade agreements among small countries create trade?", International Journal of Development Issues, Vol. 19 No. 2, pp. 205-216. https://doi.org/10.1108/IJDI-06-2019-0110
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