1 THE POLITICAL ECONOMY OF TRADE AGREEMENTS: AN EMPIRICAL INVESTIGATION

Abstract: More than 300 trade agreements have been signed since 1950. Two leading theoretical answers to explain the phenomenal growth in trade integration and to understand the variation in speed and scope of liberalization in the design of trade agreements have emerged. One is that trade agreements internalize a terms-of-trade externalities (Bagwell and Staiger 1999): without trade agreements, we would live in a world where countries beggar their neighbors with high tariffs. The other is that trade agreements help governments solve their commitment-to-free-trade problems (Maggi and Rodriguez-Clare 2007), which they bring on themselves by acceding to protectionist demands of domestic firms: trade agreements present an opportunity to governments to break free of these ties and liberalize. Together, the two theories form the basis for a clear political-economy theory of trade agreements. The empirical validity of these explanations has not been tested to date. This paper rigorously tests model-driven hypotheses from both theories. A unique data set on Asian and Latin American trade agreements is constructed. Within-variation in tariffs across country-partner dyads for each manufacturing sector over time is used in the context of quasi-experimental methods