Are Preferential Agreements Stepping Stones To Other Markets?

This paper investigates whether preferential trade agreements (PTA) promote exports to third nations through the expansion of the extensive margin (i.e. larger number of export goods). The analysis covers 11 South- South and South-North PTAs involving 36 countries that exported to 118 different destinations during the 5 years before and after the PTA. Using a conditional logit model, and trade data at the SITC 5-digit level, we estimate the effect of new within-PTA exports on the subsequent exports to thirdnation markets. The results suggest that PTAs have a positive indirect effect, i.e. spillover-effect, on exports to third countries. Previous export experience in a given product in the preferential area is shown to have a positive effect on the probability that the same product is subsequently exported to a nonmember market. The size of the effect, however, varies across PTAs.