Benefits from regional trade agreements in South-North vs South-South agreements

This paper evaluates agricultural trade creation and diversion effects of the most important regional trade agreements (RTAs) formed among countries of various economic development level. Trade creation and diversion effects are estimated using the gravity model with panel data of bilateral trade flows of agricultural products spanning the period of 2000-2019, and a Poisson Pseudo Maximum-Likelihood (PPML) estimator with country-time and country-pair fixed effects to deal with issues like heteroskedasticity and zero trade observations. The research reveals a consistent positive coefficient for RTAs indicating a distinct trade creation effect upon the formation of RTAs, with varying effects observed across income groups. Finally, the results of the estimations lead us to conclude that in the cases of South-North and South-South agreements, the South benefits in both of these scenarios with South-South Agreements presenting a significantly higher positive effect. Specifically, South-South agreements increase the trade volume amongst the countries by 424.16 % while South-North agreements increase the volume of intra-RTA exports only by 95.37 % for the South while they decrease that same volume by 30.64 % for the North.