Evaluating growth volatility susceptibility within regional free trade agreements

It is believed by many that regional free trade agreements (RFTAs) are beneficial to a nation's economy. This paper compares the effects that trading partner volatility has on countries engaged and not engaged in RFTAs. What we find is that (1) whether a country is in an agreement or not, there is a statistically significant volatility spillover from trading partner economies, (2) being in an RFTA does not insulate oneself from non-RFTA volatility, and (3) participating in an RFTA actually increases susceptibility to volatility from other RFTA countries. We conclude that in terms of volatility susceptibility, it may be harmful for a country to enter into an RFTA. © 2010 John Wiley & Sons, Ltd.