International Economics
26 August 2019

The Effects of Economic Integration Agreements

In her PhD thesis, “Go with the (Trade) Flow: Three Essays on the Effects of Economic Integration Agreements,” Rebecca Freeman examines the impact of trade deals on economic outcomes in terms of bilateral exports and firm performance. Interview with Dr Freeman, who is now working at the Bank of England.

How did you become interested in economic integration?

I chose to pursue economic integration as a research topic because of its undeniable importance on the daily lives of individuals worldwide. Whether we like it or not, it is with almost full certainty that at least some part of what we consume or use on a daily basis has been sourced from abroad. This holds for the food that we eat to the clothing we wear; for the cars that we use to the homes in which we live; for the smart phones upon which we rely to the computers installed in even the most domestically focused offices. Trade policy helps shape the form that this integration takes and impacts its overall success. My choice to pursue a PhD on the topic was driven by a desire to better understand these dynamics and contribute to the policy debate surrounding economic integration in an informed manner. 

Can you describe your thesis questions and the methodology you use to approach them?

My research covers three distinct, policy-relevant questions:

  1. Do trade agreements boost trade as much between distant countries as between neighbouring countries, and if not, why? 
  2. Which non-tariff trade agreement provisions contribute the most to expansions in bilateral trade, both at the aggregate and sector level?
  3. How do trade agreements impact the duration of UK firm-product-market export relationships, and is this effect uniform across firms of different sizes? 

Broadly speaking, I carry out a structural gravity model analysis at the product and sector level to answer the first two questions. With respect to the second question, I also conduct a policy exercise which uses the first stage sectoral point estimates of the structural gravity equation to approximate the hypothetical effect of the UK entering into a deep agreement with its largest trading partners. To answer the third question, I use transaction-level customs data on the universe of UK exporting firms and employ an econometric strategy which exploits variation in trade agreements during disaggregate export “spells” both across and with firms, in a given product-market. Here, an export spell refers to the consecutive number of years during which a given firm’s product-market export is observed in the data.

Tell us about your major findings and their policy relevance.

The main findings of my dissertation can be summarised as follows:

  1. Trade agreements boost trade more among neighbouring countries than among distant partners. This works through the channel of intermediate goods by helping neighbouring countries more easily integrate into each other’s supply networks. 
  2. Non-tariff trade agreement provisions on services, investment, and competition contribute the most to expansions in bilateral trade, both at the aggregate and sector level, and for gross in addition to value-added trade. 
  3. Trade agreements boost the overall duration of firm-product-market export relationships, and this effect is largest for firms in the middle to upper-middle of the firm size distribution.

Given global attention to trade policy worldwide and the effects of trade agreements on overall economic outcomes, the findings of my thesis could help inform policymakers’ understanding of the channels through which trade agreements operate, in terms of design features as well as aggregate, sector, and firm outcomes.

What are you doing now?

I joined the Bank of England’s international directorate as a research economist during the second year of my PhD. My role contains a mixture of research and policy work related to international trade, with a strong emphasis on the impacts of different types of economic integration.

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Rebecca Freeman defended her PhD thesis in International Relations/Political Science in June 2019. Professor Robert Koopman presided the committee, which included Professor Richard Baldwin and Professor Marcelo Olarreaga, thesis codirectors, and Chad P. Bown, Reginald Jones Senior Fellow at the Peterson Institute for International Economics, Washington DC, USA.

Full citation of the PhD thesis:
Freeman, Rebecca. “Go with the (Trade) Flow: Three Essays on the Effects of Economic Integration Agreements.” PhD thesis, Graduate Institute of International and Development Studies, Geneva, 2019.
Good to know: members of the Graduate Institute can download Dr Freeman’s PhD thesis via this page of the Institute’s repository.

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Interview by Nathalie Tanner, Research Office.
Banner image: The Bank of England, by Katie Chan [CC BY-SA 3.0].