DP8566 | Who Benefits from Regional Trade Agreements? The View from the Stock Market

Publication Date

01/09/2011

JEL Code(s)

Keyword(s)

Programme Area(s)

Abstract

The effects of Regional Trade Agreements (RTAs) are disputed. In this paper, we assess these effects using capital market data and an event-study approach, using a daily data set covering a thousand announcements spanning over eighty economies and a hundred RTAs over twenty recent years. We measure the effects of news concerning RTAs on the returns of national stock markets, adjusted for international stock market movements. We then link these excess returns to features of the RTA members and the agreements themselves. We find evidence of the natural trading partner hypothesis; stock markets rise more when RTAs are signed between countries that already engage in high volumes of trade. Stock markets also rise more when poorer countries sign RTAs.