Free Trade Agreements and the Consolidation of Democracy

Liu, Xuepeng; Ornelas, Emanuel

doi:10.1257/mac.6.2.29

Cited by 51 publications

(59 citation statements)

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“…Mansfield and Milner (2012) argue that domestic politics is a critical factor in the decision to join PTAs and democracies are more likely to join. Liu and Ornelas (2014) provide evidence that PTAs increase the probability of survival for democracies. Hafner-Burton (2013) finds human rights improvements in countries with which the US and EU have PTAs with relevant clauses.…”

Section:  Non-pecuniary International Externalitiesmentioning

confidence: 88%

Preferential Trade Agreements

Limão¹

2016

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A large and growing number of countries participate in multiple preferential trade agreements (PTAs), which increasingly entail broad cooperation over policies extending far beyond trade barriers. I review the traditional and non-traditional motives for PTAs and their empirical determinants as well as their impacts on trade and on multilateral liberalization. I argue that the broad nature of modern PTAs, their substantial creation of bilateral trade and their modest effects on members' tariffs, require us to augment the economic and policy structure of traditional models of PTAs as a static preferential tariff reduction. Throughout I draw lessons from the existing literature and point towards many interesting paths for future research, to advance our understanding of the causes of modern PTAs and their impacts on trade related outcomes and beyond. Nuno Limão Department of Economics University of Maryland 3105 Tydings HallCollege Park, MD 20742 and NBER limao@econ.umd.edu A data appendix is available at http://www.nber.org/data-appendix/w22138 A Online data and programs is available at http://terpconnect.umd.edu/~limao/handbook_pta 1 IntroductionIn 2010 the number of preferential trade agreements (PTAs) in force was four times higher than in 1990. The participation in PTAs is widespread: in 2010 each member of the World Trade Organization also participated in an average of 13 PTAs, up from only 2 in 1990 (WTO, 2011). This trend, the negotiation of mega-agreements by the U.S. and Europe and the evidence discussed below, indicate that PTAs are the most important source of trade policy reform in the last 20 years for most countries.In figure 1 we see that the proliferation of PTAs has continued after the creation of the World Trade Organization (WTO) in a period when non-preferential MFN tariffs were declining. Some of the largest growth has occurred in the last five years even though average MFN tariffs are at their lowest, averaging less than 8% in 2009. The traditional Vinerian view of PTAs, and most of the economic analysis, treats them as a static reduction in tariffs with respect to a preferential partner. But if the initial tariffs are already low then so is the preferential tariff margin, which raises two basic questions. What explains the formation and proliferation of so many PTAs and what are their basic trade and welfare effects on members? Figure 1: Preferential and Multilateral LiberalizationTo answer these two questions I first provide some stylized facts about the importance and evolution of trade between PTA members. Their share of world trade almost tripled between 1965-2010, with "deeper" PTAs becoming increasingly more important. A detailed examination of the provisions of modern PTAs in 2011 reveals policy cooperation far beyond reductions in applied tariffs. I provide a taxonomy of PTAs in terms of policy depth and breadth, where the latter includes economic and noneconomic provisions. Some of these provisions also evolved over time in the context of the GATT/WTO and others go far beyon...

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Section:  Non-pecuniary International Externalitiesmentioning

confidence: 88%

Preferential Trade Agreements

Limão¹

2016

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“…However, the same figure is substantially lower for countries belonging 23 This is in line with Figure 1 in Freund and Ornelas (2010). 24 The net Gini coefficient takes into account possible income redistribution promoted by national governments through the tax system. Solt (2009) finds that the degree of inequality on a net-basis is significantly lower than on a gross-basis in particular in developed countries.…”

Section: Datasetmentioning

confidence: 99%

The Political Economy of Preferential Trade Agreements: An Empirical Investigation

2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In this paper, 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 suggests that income inequality and bilateral trade imbalances are important factors in determining the formation of PTAs, while differences in production structure among prospective member countries determine whether a CU or an FTA will emerge in equilibrium. Using a sample of 136 countries over the period 1960-2005, our empirical analysis lends strong support to these predictions: Income inequality and trade imbalances both reduce the likelihood of PTA formation, while geographical specialization increases the conditional probability of an FTA (over a CU). Terms of use: Documents in EconStor may

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“…Let y j t denote agent j's 1 0 The present paper is also related to two others. Liu and Ornelas (2014) study the relationship between participation in free trade agreements and the sustainability of democracy. Their model shows that free trade agreements can critically reduce the incentive of authoritarian groups to seek power by destroying protectionist rents, thus increasing the chances of democratic consolidation.…”

Section: The H-o Model With Trade Policymentioning

confidence: 99%

“…But the coe¢ cient on the third term dW (p " ; Y (p " )) =dp w , the sign of which we have just seen is ambiguous, decreases more quickly than the other two and eventually goes to zero. 35 The derivatives that appear on the right hand side of (20) (dW p ; Y R (p ) =dp w etc.) are given and do not depend on or .…”

Section: Response To World Price Shock With Comparative Advantage In mentioning

confidence: 99%

“…So the elite preferred a relatively closed regime, and at the end of the Napoleonic Wars put in place the Corn Laws to protect the income they made from land. During the 1800s there was a transport revolution that dramatically reduced the world prices of grain for importers such as Britain (O'Rourke and Williamson 1999: [33][34][35][36]. The fall in prices made revolution more appealing to the rest of society in Britain since if they were able to depose the elite regime they would adopt more open trade policy, facilitating access to cheap grain from the world market.…”

Section: Introductionmentioning

confidence: 99%

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