Mars or Mercury Redux: The Geopolitics of Bilateral Trade Agreements

43 Pages Posted: 26 Feb 2019

See all articles by Barry Eichengreen

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Arnaud Mehl

European Central Bank (ECB)

Livia Chitu

European Central Bank (ECB)

Date Written: February 22, 2019

Abstract

We analyze the role of economic and security considerations in bilateral trade agreements. We use the pre-World War I period to test whether trade agreements are governed by pecuniary factors, such as distance and other frictions measured by gravity covariates, or by geopolitical factors. While there is support for both hypotheses, we find that defense pacts boost the probability of trade agreements by as much as 20 percentage points. Our estimates imply that were the U.S. to alienate its geopolitical allies, the likelihood and benefits of successful bilateral agreements would fall significantly. Trade creation from an agreement between the U.S. and E.U. countries would decline by about 0.6 percent of total U.S. exports.

Keywords: international trade agreements, alliances, geopolitics

JEL Classification: F13, N20

Suggested Citation

Eichengreen, Barry and Mehl, Arnaud and Chitu, Livia, Mars or Mercury Redux: The Geopolitics of Bilateral Trade Agreements (February 22, 2019). ECB Working Paper No. 2246 (2019); ISBN 978-92-899-3508-1 . Available at SSRN: https://ssrn.com/abstract=3341210

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Arnaud Mehl

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Livia Chitu

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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