The political economy of preferential trade agreements: An empirical investigation
Facchini. G, Silva. P, Willmann. G, The Political Economy of Preferential Trade Agreements: An Empirical Investigation, The Economic Journal, Volume 131, Issue 640, November 2021, Pages 3207–3240,
Published 16 August 2022
The authors develop a political economy model to study the decision of representative democracies to join a preferential trading agreement, distinguishing between free trade areas and customs unions. Their theoretical analysis shows that bilateral trade imbalances and income inequality are important factors determining the formation of preferential trading agreements, whereas the patterns of geographic specialisation explain whether a customs union or a free trade area will emerge. The empirical analysis—using a comprehensive panel dataset spanning 187 countries over the period 1960–2015—provides strong support for these predictions.