Strategic choices of bilateral and multilateral preferential trade agreements: empirical analysis

Abstract

The rapid proliferation of preferential trade agreements (PTAs) has prompted numerous studies on why states seek PTAs. However, very little research examines why states vary in choosing different forms of PTAs, while states’ decisions to enter bilateral or multilateral PTA affect the global, regional, and national political economies. This paper thus finds global patterns regarding which pairs of states are more likely to enter bilateral or multilateral PTAs. Based on a wide range of existing research, the paper begins with hypothesizing different effects of economic and political factors that give rise to these PTAs during the last two decades. The empirical analysis then tests these hypotheses. The result shows stark differences in pairs of states joining the two types of PTAs. Bilateral PTAs are more likely to develop between democratic states with a large market size and the World Trade Organization (WTO) membership. Multilateral PTAs tend to form between less democratic states with greater political affinity.