Preferential Trading Arrangements, Trade, and Growth

Abstract

The natural starting point in the study of the relationship among PTAs, trade, and growth is the link between growth and trade. If this relationship itself is weak, it is unlikely that we can establish a strong link between PTAs and growth since such link must work principally through trade. Until recently, trade economists had thought that their systematic research during the 1970s and 1980s had conclusively established the positive relationship between trade and growth. But the criticisms of the evidence by free-trade critics such as Joseph Stiglitz and Dani Rodrik and continued attack on the wisdom of trade liberalization by others including influential NGOs have made it essential to restate and defend this link explicitly. Once this is done, we can turn to an assessment of whether PTAs, which form a specific form of trade liberalization, promote trade in ways that is conducive to growth. Or, is there something peculiar about this instrument that renders the beneficial effects of trade liberalization ineffective?