The Political Economy of Preferential Trade Agreements: An Empirical Investigation

Facchini, Giovanni; Silva, Peri; Willmann, Gerald

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.

Citation

Facchini, G., Silva, P., & Willmann, G. (2021). The Political Economy of Preferential Trade Agreements: An Empirical Investigation. Economic Journal, 131(640), 3207-3240. https://doi.org/10.1093/ej/ueab044

• Journal Article Type: Article
• Acceptance Date: Apr 30, 2021
• Online Publication Date: May 27, 2021
• Publication Date: May 27, 2021
• Deposit Date: May 4, 2021
• Publicly Available Date: May 28, 2023
• Journal: Economic Journal
• Print ISSN: 0013-0133
• Electronic ISSN: 1468-0297
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 131
• Issue: 640
• Pages: 3207-3240
• DOI: https://doi.org/10.1093/ej/ueab044
• Keywords: Free Trade Areas; Customs Unions; Trade Imbalances; Income Inequality
• Public URL: https://nottingham-repository.worktribe.com/output/5508523
• Publisher URL: https://academic.oup.com/ej/article-abstract/131/640/3207/6286930
• Additional Information: This is a pre-copyedited, author-produced version of an article accepted for publication in The Economic Journal following peer review. The version of record Giovanni Facchini, Peri Silva, Gerald Willmann, The Political Economy of Preferential Trade Agreements: An Empirical Investigation, The Economic Journal, Volume 131, Issue 640, November 2021, Pages 3207–3240 is available online at: https://doi.org/10.1093/ej/ueab044.