Since the formation of the World Trade Organization, the proliferation of regional trade agreements has raised concerns regarding the prospects of multilateral trade liberalization. The objective of this paper is to assess whether trade among member countries, intra-regional trade, contributes more to output growth than trade with nonmember countries, or extra-regional trade, using 13 Arab states.
The empirical framework first estimates a series of Granger causality tests for the trade-growth relationship for Arab countries in our sample. Next, the marginal effects of intra-regional and extra-regional trade on economic growth in the Arab countries are estimated using a standard growth model with trade intensities as our focus variables. In addition to the basic influences of investment and population growth, the results confirm the importance of trade openness for growth.
More importantly, they show that intra-regional trade has had a lesser impact on growth in output per capita than extra-regional trade by almost 17% over the period 1990-2007. By adding Arab-EU trade as a variable to the model to estimate the differential contribution of these three types of trade on growth in the thirteen Arab countries over the same period, they show that intra-regional trade has more impact on growth in output per capita than extra-regional and Arab-EU trade by almost 9%.