Effect of Economic Convergence on Trade Relations between WTO Members and other Selected Unions

After establishment of the World Trade Organization (WTO) in 1995, not only all countries around the world had to receive progressively the WTO accession but also those that had higher economic potentials benefited further advantages from their memberships. One goal which has been followed by the WTO has relied on economic convergence. It is now a time to ask whether convergence in monetary policy, interest rate and exchange rate expands trade relations between the WTO members and between members of other economics unions such as EU, ASEAN and NAFTA. The purpose of this paper is to find out an empirical answer through analyzing relationship between economic convergence and international trade flows. To this end, we examine such effects on trade by specifying a panel econometric model using data of 126 countries worldwide during the period 1995-2004. The empirical results emphasize the role of global financial convergence on expanding trade relations between members of the WTO and other selected unions.