The Political Economy of Preferential Trade Agreements: An Empirical Investigation

Giovanni Facchini, Peri Silva () and Gerald Willmann

No 16098, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a political economy model to study the decision of representative democracies to join a preferential trading agreement (PTA), distinguishing between free trade areas (FTA) and customs unions (CU). Our theoretical analysis shows that bilateral trade imbalances and income inequality are important factors determining the formation of PTAs, whereas the patterns of geographic specialisation explain whether a CU or an FTA will emerge. Our empirical analysis - using a comprehensive panel dataset spanning 187 countries over the period 1960-2015 - provides strong support for these predictions.

Keywords: Free trade areas; Customs unions; Trade imbalances; Income inequality (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Date: 2021-05
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Journal Article: The Political Economy of Preferential Trade Agreements: An Empirical Investigation (2021)
Working Paper: The political economy of preferential trade agreements: An empirical investigation (2017)
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