Institutional Environment, Factor Ownership and the Design of Trade Agreements

• In Event: The Design of Trade Agreements

Abstract

Owners of capital in developing countries are harmed by trade liberalization. When an institutional environment facilitates their control over political power, these governments are more likely to engage in shallow trade agreements. These agreements also tend to be characterized by high flexibility and low rigidity on flexibility. Conversely, in developing countries where labor dominates the policy agenda, they lean toward an opposite design as the beneficiary of trade liberalization. An ordered probit analysis of monadic data on preferential trade agreements from 1975 to 2018 reveals that, consistent with these conjectures, developing countries with either majoritarian democracy or authoritarian governments show lower propensity to conclude deep PTAs with wide issue coverage and restricted escape clauses. And, proportional representative democracies engage in wide and substantial trade cooperation with low flexibility and rigid flexibility clauses in trade agreements. This study contributes to literatures on trade liberalization and the design of international institutions.

Author

• Zhiyuan (Sebastian) Wang, University of Florida