International Institutions and Domestic Politics: Can Preferential Trading Agreements Help Leaders Promote Economic Reform?

Abstract

How do domestic politics influence the formation of international institutions, and what are the effects of international institutions on domestic politics? In this article, we examine how leaders use preferential trading agreements (PTAs) with major powers (European Union and the United States) to promote liberal economic policies. We argue that under democratization, new leaders would benefit the most from credible commitment and side payments to compensate vulnerable domestic constituencies for their losses. Thus, they have strong incentives to negotiate a PTA with a major power. Using original data on treaty negotiations, our empirical analysis shows that under democratization, leader change greatly increases the probability that the government of a developing country begins treaty negotiations. We also demonstrate that PTAs induce liberalization in different sectors of the economy, and this effect is the most pronounced if it follows a leader change under democratization. These findings support the notion that international institutions allow leaders to surmount domestic obstacles to economic reform. The theory can help scholars explain and predict the timing of treaty formation.