Snowballing Alongside Domino Effects on the Proliferation of Preferential Trade Agreements

Abstract

Considering the third-country effects on bilateral incentives to sign a new PTA, we develop a theory-based empirical approach to access how a country's pre-existing PTAs affect her formation of a new PTA. Our empirical analysis using the theory-based measures of these effects confirms that a country's pre-existing PTAs generate a positive effect on her incentive to sign a new PTA (i.e., Own PTA effect) and a negative effect on her new partner's incentive to sign the PTA (i.e, Partner's PTA effect). The analysis also reveals that a CU's members are less likely to sign a new PTA than non-member countries as the Partner's PTA effect is magnified by the CU's joint negotiation requirement for a new PTA. Based on our n-country model of PTA proliferation, we conduct calibration exercises yielding varying degrees of predictive power.

Keywords: Preferential Trade Agreement, Proliferation of PTAs, Pre-existing PTA effects, Domino effect, Snowballing effect