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The Political Economy of Preferential Trade Agreements: An Empirical Investigation

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  • Facchini, Giovanni
  • Silva, Peri A
  • 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.

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  • Facchini, Giovanni & Silva, Peri A & Willmann, Gerald, 2021. "The Political Economy of Preferential Trade Agreements: An Empirical Investigation," CEPR Discussion Papers 16098, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16098
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    Cited by:

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    2. Jaume Sempere, 2022. "On potential Pareto gains from free trade areas formation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1502-1518, December.
    3. James Lake, 2019. "Dynamic formation of preferential trade agreements: The role of flexibility," Canadian Journal of Economics, Canadian Economics Association, vol. 52(1), pages 132-177, February.
    4. Mohammad Reza Farzanegan & Mohammad Ali Kadivar, 2023. "The effect of Islamic revolution and war on income inequality in Iran," Empirical Economics, Springer, vol. 65(2), pages 1007-1026, August.
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    6. Shuichiro Nishioka & Eric Olson, 2022. "The Political Effects of Trade with Japan in the 1980s," Working Papers 22-04, Department of Economics, West Virginia University.
    7. Atika Benaddi & Peri Silva, 2022. "The multilateral trade policy of the Arab league countries: An empirical investigation," The World Economy, Wiley Blackwell, vol. 45(11), pages 3420-3450, November.
    8. Shuichiro Nishioka & Eric Olson, 2023. "The political effects of trade with Japan in the 1980s," Economic Inquiry, Western Economic Association International, vol. 61(2), pages 451-471, April.

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    More about this item

    Keywords

    Free trade areas; Customs unions; Trade imbalances; Income inequality;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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