Hubs of Governance: Path Dependence and Higher-Order Effects of Preferential Trade Agreement Formation

Abstract

In this paper, we investigate the causes and consequences of institutional design choices in the liberalization of services trade and investment in preferential trade agreements (PTAs). We distinguish between a positive-list and a negative-list approach to services liberalization, and analyze PTAs signed by countries of the Asia-Pacific. We develop an information-based argument that explains why these different types induce path dependence in subsequent choices, and derive hypotheses that capture the “history” effect of choosing either institutional model. In doing so, we examine whether particular “modes of governance” diffuse through the growing network of trade agreements through the adoption of rules by third parties in their own PTAs. The empirical analysis tests these hypotheses using simulation-based dynamic network analysis methods. We find evidence of strong path dependence in the choice of liberalization approach, affecting the evolution of PTA networks in the Asia-Pacific and the diffusion of services liberalization in general. Such path dependence has long-term consequences for the institutional features of the international trade regime.

The Economics and Politics of Preferential Trade Agreements

“…Studies in economics find similar results relying on analogous econometric techniques (Baldwin & Jaimovich 2012, Baier et al 2014b. Moreover, several studies find evidence that specific provisions-clauses to protect investment or to liberalize services, for instancediffuse from one PTA to another, explaining the proliferation of deep integration (Baccini et al 2014, Kim & Manger 2016.…”

Breaking Gridlock: How Path Dependent Layering Enhances Resilience in Global Trade Governance

“…To the contrary, empirical research finds that ‘average levels of protection have continued to fall throughout the post‐1995 period’ (Elsig et al, 2017, p. 22) and that PTAs had a positive impact on trade flows (Dür et al, 2014). These developments reflect the strong and widespread ‘presence’ of the WTO in PTAs (Allee et al, 2017, see also Kim and Manger, 2017).…”

“…This theoretical contribution complements the rich and detailed empirical literature on the proliferation of PTAs (Baccini, 2019; Dür et al, 2014; Dür and Elsig, 2015). This literature found that PTAs are carefully adapted to work with and to expand multilateral WTO rules (Allee et al, 2017; Kim and Manger, 2017). At the same time, it has yet to put these findings in a larger theoretical context.…”

Kick‐starting diffusion: Explaining the varying frequency of preferential trade agreements’ environmental provisions by their initial conditions

“…First, it contributes to the literature on the design of PTAs (e.g., Baccini, Dür, & Elsig, 2015;Bearce, Eldredge, & Jolliff, 2016;Büthe & Milner, 2014;Hafner-Burton, 2009). In earlier studies, PTAs were grouped by whether they favour deep or shallow commitments (Dür, Baccini, & Elsig, 2014), positive or negative integration (Kim & Manger, 2016) and WTO-plus or WTO-extra obligations (Horn, Mavroidis, & Sapir, 2010;Kohl, Brakman, & Garretsen, 2016). This paper looks more specifically at environmental provisions as an increasingly important subset of PTA design features.…”

“…Other recent studies at this micro‐level have looked at the diffusion outcomes of a few specific PTA provisions. For example, Kim and Manger () and Pelc () studied diffusion of exceptions to service liberalisation and escape clauses, respectively. They found that strong path dependence explains the success of the most widely diffused provisions.…”