Analyzing the Determinants of Trade Agreements: A Cross Country Socio-Economic-Political Analysis

Abstract

ABSTRACT This article examines the determinants of trade agreements. Apart from the standard economic variables like market size, factor endowment difference, and distance, we incorporate socio-cultural and political factors like common language, colonial heritage, political regime, and bilateral relationships. We perform a qualitative comparative analysis, which gives joint causation. The panel probit regression for 163 countries during 2000 to 2014 reveals that countries joined trade agreements not merely for economic reasons but for political and socio-cultural reasons. Only colonial heritage acts as an opposing force. Detailed knowledge of the determinants of trade agreements can help to form successful bilateral trade relations.