Trade Creation and Trade Diversion Effects of U.S. Free Trade Agreements: An Empirical Analysis

Abstract

The United States of America has 12 bilateral free trade agreements and two multilateral free trade agreements, including 20 trade partner countries. Using the gravity model, this dissertation examines 13 free trade agreements. The study applies alternative methods to estimate the benefits of free trade agreements. The first section investigates the performance of U.S. reciprocal free trade agreements and compares the benefits of trade flows from the United States as an exporter to its trade partners and the United States as an importer. The second section develops a new mechanism of econometrics to overcome the endogeneity issue while examining the trade creation and diversion associated with U.S. reciprocal trade agreements. The study reveals that the benefits of bilateral free trade agreements vary depending on trade flows, whether the United States is an exporter or an importer. Generally, the United States derives more benefit as an exporter than as an importer. Furthermore, the trade diversion exporter in the United States generates a more significant impact than the trade diversion importer does.