Do preferential trade agreements contribute to the development of trade? Taking into account the institutional heterogeneity

Following the surge of preferential trade agreements (PTAs) from the 1990's, especially bilateral ones, recent research has begun to reconsider their effects on the development of international trade. These agreements are so different in terms of scope, sectorial coverage, institutional framework…that they can be no more considered as belonging to a homogeneous category. Especially, the inclusion of new areas of negotiation raises questions as to their positive or negative contribution to trade liberalization. In this paper, four trade-related policy domains, more and more frequently negotiated in PTAs, are identified (capital mobility, competition policy, labor mobility and environment). After a general discussion of their supposed effects on international trade, an empirical investigation identifies their effects separately. The gravity model with panel data on the 1960–2010 period is used. To account for zero trade flows, Poisson Pseudo-Maximum Likelihood approach has been applied. Results show that negotiating labor mobility and environmental provisions significantly increases trade, whereas the effects of clauses on capital mobility and competition policy are not systematically significant. Statistical analysis shows that negotiation on labor mobility and environmental issues have an impact independent from the agreement as a whole, confirming the relevance of the heterogeneity hypothesis.