Preferential Trade Agreements under Declining American Hegemony

Kaoru Ishiguro

doi:10.5430/ijfr.v9n1p163

Abstract

We examine the international determinants of the formation of preferential trade agreements (PTAs) according to the theory of hegemonic stability. The main conclusions are as follows. First, as the theory of hegemonic stability argues, the lack of a stable hegemon fosters the formation of PTAs. When hegemony is measured by trade share and investment share in the global economy, the erosion of hegemony fosters PTAs. Second, hegemony measured by GDP share has a positive effect on PTA formation; however, this measure is not consistent with the theory’s prediction. Third, improvement in the level of democracy worldwide is unrelated to the formation of PTAs.

Highlights

Preferential trade agreements (PTAs) or regional trade agreements (RTAs) exert an important influence on both domestic economies and the global economy, by assuring free access among the member states
Hegemony measured by GDP share has a positive effect on PTA formation, the measure does not support the theory’s prediction
We have examined the international determinants of PTA formation according to the theory of hegemonic stability

Summary

Introduction

Preferential trade agreements (PTAs) or regional trade agreements (RTAs) exert an important influence on both domestic economies and the global economy, by assuring free access among the member states. The bloom of PTAs is considered one of the most important economic phenomena in the world economy in the 30 years since the Cold War. The World Trade Organization (WTO) reports that by 2017, there were more than 300 signed PTAs still in force (see Figure 1). What factors can explain the varying rate of PTA formation since the Cold War? The purpose of this study is to explain the international determinants of PTA formation since the Cold War. Mansfield and Milner (2012) point out crucial factors to consider based on the theory of hegemonic stability (Krasner, 1976; Gilpin, 1981, 1987; Keohane, 1984; Lake, 1988).

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