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Testing Conflicting Political Economy Theories: Full-Fledged versus Partial-Scope Regional Trade Agreements

  • Xuepeng Liu


    (Department of Economics, Finance & Quantitative Analysis, Kennesaw State University, #0403, Burruss Building #4, Room 322, 1000 Chastain Road, Kennesaw, GA 30144)

We apply a duration analysis to test the conflicting predictions of the median voter model and the lobbying model using panel data on regional trade agreement (RTA) formation. Our results show that the pro-labor prediction of the median voter model is supported by the full-fledged free trade areas and customs unions (FTAs/CUs), while the pro-capital prediction of the lobbying model is supported by the partial-scope preferential trade arrangements among developing countries. This finding holds better for the country pairs with more different capitallabor ratios as a result of the stronger distributional effects of RTAs. The support for the median voter model (lobbying model) is stronger when the two countries in a pair have leftoriented (right-oriented) governments. I also find stronger support for the median voter model for the subset of FTAs/CUs with service coverage and stronger support for the lobbying model for countries that place higher weight on political contribution.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 77 (2010)
Issue (Month): 1 (July)
Pages: 78-103

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Handle: RePEc:sej:ancoec:v:77:1:y:2010:p:78-103
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