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Willert, Bianca
Year of Publication: 
Series/Report no.: 
Thünen-Series of Applied Economic Theory - Working Paper 147
International trade and fragmentation of production lead to increased trade in intermediate goods. Increased multi-stage production promotes the formation of free-trade agreements (FTA). In this paper, the relationship between intermediates trade and FTAs is examined with a two-step Pseudo Poisson Maximum Likelihood model. The analysis of a comprehensive dataset of pairwise trade-flow data of 70 countries from the years 1995-2011 shows a significant connection between trade in intermediates and the participation in free-trade agreements. A two-way relationship is identified: intermediates trade increases the probability to form a FTA and FTAs lead to an increase in intermediates trade.
free-trade agreements
international trade
intermediates trade
multi-stage production
fragmentation of production
vertical linkages
third-country effects
gravity equations
distance coefficients
border effects
Document Type: 
Working Paper

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