The Domestic Politics of Preferential Trade Agreements in Hard Times

Abstract

There is evidence that some countries negotiate trade agreements during economic downturns. Why would a leader do this? We argue that political leaders can gain from such agreements because of the signals they send to their public. The public are less likely to blame leaders for adverse economic conditions when they have implemented sound economic policies, such as signing agreements designed to liberalize trade and prevent a slide into protectionism. In hard economic times, leaders – especially those in democratic environments – may find that trade agreements are a useful way to reassure the public. Since majorities in many countries around the world view trade favorably, leaders may see agreements that prevent them from adopting protectionism as a way to maintain support. We evaluate this argument by analyzing preferential trade agreements (PTAs) formed since 1962. We find that, on average, democratic countries are more likely to form PTAs during hard economic times. We also find that democratic leaders who sign PTAs during downturns enjoy a longer tenure than their counterparts who do not sign such agreements.

Conflicted Capital: The Effect of Civil Conflict on Patterns of BIT Signing

“…This helps explain why governments find signing a BIT appealing at one point, but end up reevaluating the costs later. This corroborates findings by Simmons (2014) and Mansfield and Milner (2015) who demonstrate that economic crises affect international economic engagement. Future studies should look for similar dynamics across different institutions and develop alternative causal pathways linking crises and leaders' economic policy choices.…”

“…Extant research tends to prioritize either costs or benefits, but we argue that the appeal of BITs changes along with domestic conditions. This complements scholarship showing that economic crises have important effects on whether states join international institutions (e.g., Simmons 2014;Mansfield and Milner 2015), suggesting that conflict is an underexplored source of state behavior. Furthermore, some institutions may be appealing due to inherent design features.…”

“…Mansfield and Milner (2012) argue that preferential trade agreements (PTAs) have an important effect on domestic politics by reassuring the public that the government is enacting credible policies (see also Mansfield, Milner, and Rosendorff 2002;Milner and Kubota 2005). Further, the informational role of economic agreements is pronounced after periods of economic crisis (Mansfield and Milner 2015). There are reasons to believe that BITs can play a similar informational role.…”

Biased politicians and independent agencies

“…That reform frequently follows poor economic outcomes, such as crises (Abiad and Mody, 2005;Brooks and Kurtz, 2007;Chwieroth, 2013;Mansfield and Milner, 2018), is consistent with the equilibrium. For example, after the financial crisis of 2008, it became clear that existing economic regulation was insufficient to prevent crisis and that reform was needed.…”

Alliance networks and trade

“…While these are not meant as definitive tests, they do provide evidence that both government and firm incentives are shaped by indirect political alliances. For each mechanism, I start by including the Shared community variable in similar empirical specifications to prominent recent studies on these subjects: Mansfield & Milner (2015) for PTAs 26 and Li and Vashchilko (2010) for FDI. To produce results more directly comparable to those in the present study, I then run models accounting for the same set of controls as the full model in the previous section (see Table II).…”