Impacts of Free Trade Agreements on Agricultural Trade Creation and Trade Diversion

Abstract

This paper evaluates agricultural trade creation and diversion effects of the most important free trade agreements (FTAs). Trade creation and diversion effects are estimated using a Poisson Pseudo‐Maximum‐Likelihood (PPML) estimator with various fixed effects to deal with heteroskedasticity and zero trade observations. The analysis finds that PPML estimation is preferred to OLS and the estimated impacts of FTAs are different if zero trade observations are considered. The ASEAN‐China preferential trade agreement, EU‐15, EU‐25, and Southern African Development Community agreements have generated large increases in agricultural trade among their members.