Discussion Paper Details

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Title: The Political Economy of Preferential Trade Agreements: An Empirical Investigation

Author(s): Giovanni Facchini, Peri Silva and Gerald Willmann

Publication Date: May 2021

Keyword(s): Customs Unions, Free Trade Areas, Income inequality and trade imbalances

Programme Area(s): International Trade and Regional Economics

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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Bibliographic Reference

Facchini, G, Silva, P and Willmann, G. 2021. 'The Political Economy of Preferential Trade Agreements: An Empirical Investigation'. London, Centre for Economic Policy Research.