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ID: <

oai:doaj.org/article:1426c1885013464f9cb0cfc0453c0439

>

·

DOI: <

10.25222/larr.679

>

Where these data come from
Deep Trade Agreements and Domestic Institutions in the Americas

Abstract

Preferred trade agreements (Ptas) have spread quickly the world since the 1990s. In the Americas, the proliferation of trade agreements with countries from within and beyond the region have resulted in a “spaghetti bowl” of overlapping rules and regulations, scope of which address behind-the-border issues as investment, competition, work, and environmental standards. Earlier research has linked trade agreements to increased foreign investment flows. This article argues instead that the effects of Ptas on FDI depend on the domestic institutional capacities of member countries. Domestic institutions condition the benefits and effectiveness of Ptas by influencing governments’ external Credibility as well as their ability to implement the agreements they sign. The empirical findings show that weak state capacity exacerbates the spaghetti-bowl effects of multiple, overlapping agreements. Moreover, it is not the quantity but the quality, and more specifically, the depth of trade agreements that matters for Attracting FDI. Summary Free Trade Agreements have spread rapidly around the world since the 1990s. In the Americas, the proliferation of trade agreements with countries inside and outside the region has resulted in ‘spaghetti bowl’ of parallel and overlapping rules and regulations. In this work, we argue that the effect of preferential trade agreements (PTAs) on FDI depends on the quality of national institutions in member countries. The political institutions of each Member State affect the external credibility as well as their capacity to implement the agreements they sign, thereby influencing the benefits and effectiveness of PPAs. According to our empirical analysis, low state capacity exacerbates negative effects of commercial ‘spaghetti bowl’. In addition, the quality (or depth) of the PCAs imports more than the quantity. Deep trade agreements, covering domestic issues and regulations, tend to attract higher FDI flows than surface agreements.

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