An Empirical Study on the Determinants FTA among the Bilateral Trading Partners

Historically, Free Trade Agreements (FTAs) have been, and will continue to be, an important gateway for improving world trade, given that the world trading system is substantially hampered by man-made barriers. This paper examines into the deterministic key factors and their relative importance for FTA negotiations among the bilateral trading partners using a Probit Model based on 9,178 non-zero trading pairs having 705 active and operational bilateral FTAs. Based on the estimated model, the study projects the future potentiality of FTA negotiations in the Asia-Pacific region. The study works on eleven hypotheses regarding the dependency of FTA on the economic and non-economic characteristics of the bilateral trading partners and the findings support 9 out of the 11 hypotheses. The likelihood of forming an FTA between a pair of countries is higher: (1) the closer in distance the two trading partners are; (2) less remote a natural pair is relative to other countries; (3) economicall