Mars or Mercury redux: The geopolitics of bilateral trade agreements. (18th September 2020)

• Record Type: Journal Article
• Authors: Eichengreen, Barry; Mehl, Arnaud; Chițu, Livia
• Is Part Of: World economy. Volume 44:Number 1(2021)
• Page Start: 21
• Page End: 44
• Publication Date: 2020-09-18
• Subjects: alliances -- geopolitics -- international trade agreements; International economic relations -- Periodicals; 330
• DOI: 10.1111/twec.13018
• Languages: English
• ISSNs: 0378-5920

Abstract

Abstract: We analyse the role of economic and security considerations in bilateral trade agreements. We use the pre‐World War I period to test whether trade agreements are governed by standard gravity variables, or by instead—or in addition—geopolitical factors. While we like others find support for standard gravity variables, we also find that defence pacts boost the probability of trade agreements by as much as 20 percentage points. Our estimates imply that were the U.S. to alienate its geopolitical allies, the likelihood and benefits of successful bilateral agreements would fall significantly. Trade creation from an agreement between the U.S. and E.U. countries would decline by about 0.6 per cent of total U.S. exports.