DEEP PREFERENTIAL TRADE AGREEMENTS AND GLOBAL TRADE: A NETWORK ANALYSIS APPROACH

Abstract

Preferential trade agreements (PTAs) form an increasingly dense global network. However, preferential liberalisation differs across PTAs and countries are unevenly integrated through their involvement in PTAs. This thesis examines how countries’ embeddedness in the PTA network affects their trade. This thesis forwards the theory that being highly embedded in the PTA network benefits countries’ levels of trade. Participation in many, deep PTAs with other countries in the PTA network signals a commitment to trade liberalisation and locks in a trajectory for domestic regulatory reform. Highly embedded countries become attractive trading partners as other countries gravitate towards them in expectation of efficiency gains. This in turn locks in production and trade relations, contributing to higher levels of trade for highly embedded countries. Network analysis is used to construct a multilevel PTA network, identify communities in the PTA network, and compute measures of countries’ embeddedness in the PTA network. OLS regression is then used to estimate the effects of countries’ embeddedness in the PTA network on their trade levels. The findings show that there is a hierarchical community structure in the PTA network and countries’ embeddedness within the PTA network have a positive effect on their levels of trade. The findings suggest that there exists a network effect of PTAs on countries’ trade that is distinct from and goes beyond the independent effects of PTAs on trade.