This Rapid Evidence Assessment addresses two questions, to which it finds the literature offers partial answers:
- How have free trade agreements (FTAs) between developed and developing countries impacted economic development in developing countries?
- What does this tell us about how developing countries might best benefit from new FTAs (such as economic partnership agreements) and how can they avoid harm?
Focusing particularly on analyses of fully or substantially completed FTAs, this assessment finds that although some aspects of these questions have been assessed extensively, others have been largely ignored and that, even in the areas where coverage is good, findings differ markedly between studies. It is based on a detailed quality assessment of 45 FTAs involving most Organisation for Economic Cooperation and Development states and 35 developing countries and regions. Most are North–South, but a strong sample of South–South agreements is also included. No systematic difference in the impact of North–South and South–South agreements was found in the assessed literature.
The literature provides little guidance on what happens in practice. None of the high and moderate quality studies estimated the distributional impact or the employment and environmental effects of fully or substantially implemented FTAs. Two studies of FTAs near the start of their implementation period flagged the potential loss of government revenue from reduced tariffs – but no study of a mature FTA estimated the actual effects (or analysed the impact of the government’s response).
The minimum lesson is that at an aggregate level FTAs are in most cases neither ‘a golden bullet’ that will automatically destroy impediments to trade nor a potent source of the harm envisaged by critics. But the operative words are ‘at an aggregate level’ – particularly, though not exclusively, as regards the potential for harm.
Chris Stevens, Muhammad Irfan, Isabella Massa, Jane Kennan
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