What are the economic effects of regional trade agreements?

The purpose of this study is to review the economic effects of regional trade agreements (RTAs). We examine whether RTAs lead to trade creation or trade diversion, thus raising or lowering world welfare. In addition, we investigate whether RTAs are contributing to or are hindering global free trade. Our review suggests that there is inconsistency in the trade creation and diversion effects of RTAs with empirical support for both effects. In addition, there tends to be no consensus in the literature on the role of RTAs as “building blocks” or “stumbling blocks” for global free trade. The study raises implications for future research.