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Understanding Trade Agreement Formation: The Role of Global Uncertainty and Geopolitical Closeness

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  • Reshma Ann Gigi

    ((corresponding author) Madras School of Economics, Chennai, Tamil Nadu, India, 600025)

Abstract

Trade agreements are praised for promoting international trade and cooperation among member nations. However, as the global economy becomes more uncertain and geopolitically fragmented, countries increasingly rely on trade pacts to counteract these challenges. Under these circumstances, this paper aims to statistically measure and quantify the likelihood of countries signing trade agreements amid uncertainty and to explore whether geopolitical closeness influences this probability. The econometric approach uses a panel logit model to analyze how global uncertainty and geopolitical closeness impact the formation of trade agreements from 1990 to 2021. The results show that global uncertainty tends to increase the chances of forming trade agreements, emphasizing the role of economic integration in reducing risks during uncertain times. Additionally, geopolitical closeness significantly encourages trade agreement formation, highlighting the importance of shared political ideologies, especially in today’s globalized world.

Suggested Citation

  • Reshma Ann Gigi, 2025. "Understanding Trade Agreement Formation: The Role of Global Uncertainty and Geopolitical Closeness," Working Papers 2025-285, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2025-285
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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F19 - International Economics - - Trade - - - Other
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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