Preferential Trade Agreements and Leaders’ Business Experience

Abstract

Many theories attempt to explain the determinants of preferential trade agreements (PTAs) and their design. Existing accounts, however, focus almost exclusively on structural or domestic factors and ignore individual leaders. In this paper, I develop and test novel theoretical claims regarding executive leaders’ prior career in business and their trade cooperation policy once in office. I construct a new dataset on the heads of the executive’s business managerial experience and test my main claims in a time-series-cross-sectional setting covering 185 countries from 1948 to 2009. To establish causality, I rely on an instrumental variable strategy and leverage exogenous transitions due to sudden deaths or terminal illness in office. The results show that businesspersons-turned-politicians are more likely to enter PTAs and are more likely to sign deeper PTAs. The relationship is further investigated in an illustrative case study of the 1988—Canada trade deal. The substantive effect of business experience is comparable to that of established factors in the literature, such as regime type, and is robust to numerous tests, specifications, subsamples, and measurements of business experience.