Are all trade agreements equal? The role of distance in shaping the effect of economic integration agreements on trade flows

How does geographic distance affect the impact of trade agreements on bilateral exports, and through what channels? This paper examines these questions in a gravity model context for different types of goods for 185 countries over the period 1965–2010. Three stylized facts emerge. First, although economic integration agreements have a positive impact on trade flows, geographic distance significantly decreases their effect. Second, this phenomenon is in large part explained by the impact of economic integration agreements on intermediate goods. These results hold when controlling for trade agreement depth, measured by the type of agreement and content of provisions, and economic similarity among trading partners. Third, this paper finds either a smaller negative effect or no effect on the interaction between distance and economic integration agreements for non-intermediates. This underscores that while economic integration agreements promote trade in all goods, there is an additional benefit to intermediates which diminishes faster with distance.