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The Political Economy of Discrimination: Modelling the Spread of Preferential Trade Agreements

The Political Economy of Discrimination: Modelling the Spread of Preferential Trade Agreements. Mark S. Manger Assistant Professor McGill University mark.manger@mcgill.ca. Research Question. What explains the geographic variation in the spread of PTAs?.

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The Political Economy of Discrimination: Modelling the Spread of Preferential Trade Agreements

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  1. The Political Economy of Discrimination: Modelling the Spread of Preferential Trade Agreements Mark S. Manger Assistant Professor McGill University mark.manger@mcgill.ca

  2. Research Question What explains the geographic variation in the spread of PTAs?

  3. Current Knowledge:Bottom-up Explanations • Milner (1997), Chase (2003, 2005): Multinational firms seek greater economies of scale through PTAs. Problem: Suggest no PTAs in Asia Pacific • Chase (2005): PTAs to facilitate regional production sharing. Problem: Predicts PTAs with China, not ASEAN • Mansfield, Milner, Rosendorff (2002): Democratic Countries are more likely to sign PTAs. Problem: Everybody’s doing it now.

  4. Current Knowledge:Top-down Explanations • Grieco (1997): Capabilities shift hypothesis; disadvantaged countries will shun PTAs with rising powers. Problem: Opposite of what we observe. • Mansfield and Reinhardt (2003): Growing WTO membership creates friction; more PTAs induce states to likewise sign agreements. Problem: Leaves geographic pattern of PTAs unexplained.

  5. Current Knowledge: Domino theory of regionalism • Baldwin’s (1996) predicts regional spread of PTAs. Countries join agreements because they fear trade diversion. • Problems: • trade diversion is not evident • complex network of PTAs does not conform to expectations. Countries rarely join existing PTAs.

  6. Spatially Dependent PTAs • Countries will sign PTAs when their neighbours are doing so. • Baldwin hypothesis: trade diversion leads countries to join existing PTAs with neighbours • Existing PTA not open to expansion or unattractive: Excluded countries form alternative PTAs with other proximate countries • Competition for export markets or FDI: Developing countries sign PTAs when their neighbours are gaining preferential access to major markets

  7. Model First-cut at only modelling geographic proximity Undirected dyad-year framework with binary dependent variable DV: All reciprocal PTAs 1960-2004, not counting partial scope agreements Estimators: Familiar logit with cubic splines; Bayesian MCMC W= row-standardized spatial weight matrix of the dependent variable at t-1 divided by distance

  8. Variables

  9. Future research avenues • Space is not just geography: explore similarity measures like GDP/cap, export profiles, trade links. • Develop appropriate spatial lag estimator for binary DV panel data • Computational challenges: R is sloooow

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