Working Paper: CEPR ID: DP8595
Authors: Jean-Louis Arcand; Marcelo Olarreaga; Laura Zoratto
Abstract: The recent theoretical literature on the determinants of trade agreements has stressed the importance of political gains, such as credibility, as a rationale for trade agreements. The empirical literature, however, has lagged behind in the estimation of the economic gains or losses associated with these politically motivated trade agreements. This paper fills that gap by providing estimates of the economic impact of politically and economically motivated trade agreements. We find that credibility gains play a role in increasing the probability of two countries signing an agreement. Moreover, agreements with a stronger political motivation are more trade creating than agreements that are signed for pure market access / economic reasons, and the value for the government of solving its time inconsistency problems through trade agreements is estimated at an average of 1.8% of GDP, which compares quite well with the traditional estimates of the economic gains from trade.
Keywords: Credibility; Political Economy; Trade Agreements
JEL Codes: D72; F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government credibility (H12) | likelihood of signing trade agreements (F13) |
| weak bargaining power (C79) | likelihood of signing trade agreements (F13) |
| sensitivity to domestic lobbying (D72) | likelihood of signing trade agreements (F13) |
| credibility-driven trade agreements (F13) | trade creation (F14) |
| significant time inconsistency problems (D15) | likelihood of signing trade agreements (F13) |