On the political economy of trade agreements: A de jure and de facto analysis of institutions

Abstract

This paper examines the effect of the quality of institutions on the membership in trade agreements from de jure and de facto perspectives, with a special focus on the Middle East North Africa (MENA) countries. First, for the de jure aspect, we analyze how the quality of domestic institutions in a country affects its likelihood of joining a trade agreement. Moreover, for the de facto aspect, this paper examines how the difference in quality of institutions among trading partners and enforceability degree affects the volume of trade among them. Our main findings show that the larger the difference in the quality of institutions, among MENA countries and their trade partners, the less likely they sign a trade agreement (deep compared to a shallower one). Moreover, the higher the enforcement degree of the agreement is, the greater the positive effect on trade flows. This result holds for the enforcement of the aspects related to the World Trade Organization provisions (WTOP) and those not related to it (WTOX). Yet, this positive effect of enforceability differs according to the content of legally enforceable provisions. Finally, our results hold even when we control for the selection bias related to joining a trade agreement, the endogeneity of enforcement and the way we measure both institutions and enforcement.