The new regionalism and policy interdependence

Over the last twenty years, the number of bilateral and regional preferential trade agreements in existence has increased very rapidly. Explanations of this development emphasize factors such as the spread of democracy, deadlock in multilateral trade negotiations, and learning. Our argument is that policy diffusion as a result of competition over market access is a major driving force behind what has become known as the “new regionalism”. The causal reasoning is that facing trade diversion, exporters excluded from a preferential trade agreement are likely to mobilize and push their government into signing an agreement with the country in which their exports are threatened. We test our argument against alternative explanations in a quantitative analysis of the proliferation of preferential trade agreements among 168 countries between 1990 and 2007. By showing that competition is indeed a major cause of the new regionalism, the paper contributes to the literatures on regionalism and policy diffusion