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Mars or mercury redux: the geopolitics of bilateral trade agreements

Barry Eichengreen (), Arnaud Mehl () and Livia Chiţu

No 2246, Working Paper Series from European Central Bank

Abstract: We analyze the role of economic and security considerations in bilateral trade agreements. We use the pre-World War I period to test whether trade agreements are governed by pecuniary factors, such as distance and other frictions measured by gravity covariates, or by geopolitical factors. While there is support for both hypotheses, we find that defense pacts boost the probability of trade agreements by as much as 20 percentage points. Our estimates imply that were the U.S. to alienate its geopolitical allies, the likelihood and benefits of successful bilateral agreements would fall significantly. Trade creation from an agreement between the U.S. and E.U. countries would decline by about 0.6 percent of total U.S. exports. JEL Classification: F13, N20

Keywords: alliances; geopolitics; international trade agreements (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-int
Note: 501438
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