Preferential trade agreements and bilateral investment treaties limit member-states' policy discretion; consequently policy uncertainty is mitigated. Reductions in policy uncertainty stemming from accession to an international agreement improve the resource allocation decisions of voters and reduce deadweight losses from the need to self-insure against policy uncertainty. If electoral accountability makes expropriation of assets or discriminatory treatment of firms more costly to leaders (whereas electoral accountability has little effect on rent creation via tariff revenues) then among developing countries, democratic states sign preferential trade agreements relatively more frequently than autocratic states; however, autocratic states are more likely to sign bilateral investment treaties than are democratic states. We offer a simple model, and present some empirical regularities consistent with the theory.
- Bilateral investment treaties
- Preferential trading agreements
ASJC Scopus subject areas
- Economics and Econometrics