Are preferential trade agreements (PTAs) "building blocks" or stumbling blocks" on the road to global free trade? That is, do such arrangements help or hinder the process of multilateral trade liberalization (MTL)? This "dynamic time-path" question has taken on greater salience due to the recent proliferation of PTAs. Of the 40 or so now in existence, over half-including the North American free Trade Agreement (NAFTA), Asia-Pacific economic Cooperation (APEC) and the Southern Cone common Market countries now belong to PTAs. Pundits and politicians have welcomed this development as a sign of progress toward a freer global economy. The unconditional embrace of PTAs should raise some concern, however, because in fact we know very little about these arrangements' dynamic effects.
There are two views on the dynamic time-path question. Some scholars believe that PTAs speed MTL and are thus the building blocks of a liberal trade order. Others view PTAs as stumbling blocks, i.e. impediments to MTL. Although arguments on both sides abound, the debate remains unresolved. One reason is that the impact of PTAs may depend on a variety of circumstances; hence a clear, non-parametric answer to the dynamic time-path question may not exist. A second reason is that few claims on either side have been subjected to rigorous empirical testing.
This Doctoral Dissertation Research Support project addresses these issues in two ways. First, the researchers have developed a formal model which allows them to examine the impact of PTA formation on politicians' trade-policy preferences under different institutional and economic conditions. The model indicates that PTA formation can either increase or decrease members' political support for MTL, depending on the interaction of three factors: PTA type, the pattern of trade flows among members, and members' initial tariff levels. The model thus advances the currently polarized dynamic time-path debate by identifying conditions under which PTAs help and hinder global trade liberalization.
Second, the researchers will conduct extensive quantitative research on PTAs' dynamic time-path effects. This will proceed along two paths. First, they will test the model's hypotheses to determine whether it accurately identifies the conditions under which PTAs help and hinder MTL. These tests will indicate not only the model's accuracy but also whether and how the theory needs to be revised. Second, they will inductively examine the impact of PTAs on trade and trade policies within individual countries, regional groups. PTAs, and the universe of cases. The research will thus advance our understanding of the dynamic time-path question regardless of the formal model's success and will introduce much-needed empirical content into this now-theoretical debate.