1. ¹Kelley School of Business, Indiana University, Bloomington, USA
2. ²Department of Economics, Università Politecnica delle Marche, Ancona, Italy
3. ³Faculty of Business, Brock University, St Catharines, Ontario, Canada

Correspondence: CH Oh, Brock University, 500 Glenridge Avenue, St Catharines, Ontario, L2P 3X6, Canada. Tel: +1 906 688 5550, ext. 5592; Fax: +1 905 378 5716; E-mail: coh@brocku.ca

Received 27 August 2007; Revised 8 September 2008; Accepted 14 September 2008; Published online 26 March 2009.

Abstract

We test the relationship between the size of regional trade agreements (RTAs) and openness by using a gravity equation with multilateral trade factors. Our sample includes 11 RTAs, seven with constant membership and four with expanding membership. Regional trade bias declines with the size of the club; three of the four expanding RTAs have already surpassed their "optimal" size. We also explore the link between openness of the RTA and the geographic strategy of the multinational enterprise. We find strong evidence in favor of the regionalization strategy, which has been enhanced by the presence of RTAs.