The political economy of preferential trade agreements: An empirical investigation

Giovanni Facchini, Peri Silva () and Gerald Willmann

No 2096, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: In this paper, 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 suggests that income inequality and bilateral trade imbalances are important factors in determining the formation of PTAs, while differences in production structure among prospective member countries determine whether a CU or an FTA will emerge in equilibrium. Using a sample of 136 countries over the period 1960-2005, our empirical analysis lends strong support to these predictions: Income inequality and trade imbalances both reduce the likelihood of PTA formation, while geographical specialization increases the conditional probability of an FTA (over a CU).

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: 2017
New Economics Papers: this item is included in nep-int and nep-pol
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Citations: View citations in EconPapers (2)

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Related works:
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 (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:2096

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