Political Trade Dependence and RTA Formation

43 Pages Posted: 1 Aug 2011 Last revised: 30 Oct 2012

See all articles by Mark S. Manger

Mark S. Manger

University of Toronto - Munk School of Global Affairs and Public Policy

Ken Shadlen

London School of Economics and Political Science

Date Written: 2011

Abstract

Why do developing countries negotiate North-South trade agreements, when they already enjoy preferential market access to developed country markets? Most developing countries benefit from the Generalized System of Preferences (GSP) and related schemes when they export to the US, the EU and other developed economies. And yet, many pursue fully reciprocal agreements that require major concessions to the developed partner. We argue that this is due to the nature of the GSP as a unilateral concession that can be (and often is) taken away. High dependence on such exports motivates developing countries to seek North-South RTAs. We develop a concept of “political trade dependence” and illustrate its effect with Latin American cases. We then test our hypothesis on a dataset of EU and US trade agreements with developing countries. We find robust statistical support for our hypothesis that high and rising levels of political trade dependence make the negotiation of a North-South RTA more likely.

Keywords: preferential trade agreements, developing countries, generalized system of preferences (GSP)

JEL Classification: F13, F15, O19

Suggested Citation

Manger, Mark S. and Shadlen, Kenneth C., Political Trade Dependence and RTA Formation (2011). APSA 2011 Annual Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1900241

Mark S. Manger (Contact Author)

University of Toronto - Munk School of Global Affairs and Public Policy ( email )

Toronto, Ontario
Canada

Kenneth C. Shadlen

London School of Economics and Political Science ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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