Based on static analysis, a number of studies argue that forming a RTA is more likely to raise
welfare if member countries are “natural trading partners,” while other studies claim the
opposite. This paper considers the argument from a dynamic viewpoint by examining the
impact of trade with Japan, North America and the EU on technology diffusion and TFP in
Korea, Mexico and Poland. Using industry-level data, we show that i) technology diffusion
and productivity gains tend to be regional: Korea (Mexico) (Poland) benefits mainly from
trade with Japan (North America) (the EU); and ii) the dynamic version of the “natural trading
partners” hypothesis seems to hold for Korea and Mexico though not necessarily for Poland.