Expanding RTAs, Trade Flows, And The Multinational Enterprise

The authors test the relationship between the size of Regional Trade Agreements (RTA) and openness by using a gravity equation with multilateral trade factors. The sample includes eleven RTAs, seven with constant membership and four with expanding membership. Regional trade bias declines with the size of the club; three of the four expanding RTAs have already surpassed their 'Optimal' size. They also explore the link between openness of the RTA and the geographic strategy of the multinational enterprise. They find strong evidence in favor of the regionalization strategy, which has been enhanced by the presence of RTAs.