Interdependence of preferential trade agreements in Latin America

Abstract

The aim of this paper is to identify the main sources of interdependence that have taken place in Latin America and that may have influenced the signing of a high number of PTAs in this region.That is, we study empirically whether the signing of a new preferential trade agreement or the expansion of existing ones creates incentives for other countries or pairs of countries in the region to join or form new PTAs.To achieve this goal we are going to apply two empirical strategies: on the one hand, the one used by Egger and Larch (2008) and Baldwin and Jaimovich (2012) and on the other, the one applied by Baier, Bergstrand and Mariutto (2014). A probit is estimated in both strategies, as the dependent variable reflects the existence or absence of an agreement between a given pair ofcountries. To predict both, PTA membership levels and changes, the two methodologies use panel data where the explanatory variables are lagged to avoid a bias associated with feedback effects.