Should the international community be concerned about the enlargement of regional trade blocks? The case of the European Union

This research assesses the impact of enlarging regional trade agreements (RTAs) on external producers' market share within the RTAs. More specifically, it focuses on the accession of the less advanced nations to the European Union, to see whether there is trade diversion with the rest of the world because of those nations' comparative advantages in cheap labour and lower transaction costs. The findings of this study support the claim that the effects of RTA enlargement on trade are ambiguous. However, the results also show that the effects bear more resemblance to trade creation than trade diversion. The study concludes that in upward trending markets an RTA enlargement does not produce serious adverse consequences for other countries.