Disaggregating PTAs at the Role of International Division of Labor on PTA Formation

Abstract

This paper shows that additional insights on PTA formation can be gained from separating North-South, North-North, and South-South country pairs. Inter-industry trade is mostly significant for all country pairs and intra-industry trade has a positive impact only for North-South and North-North country pairs. Controlling for geographical proximity, countries choose PTA partners with which they have a history of trading. Using a simple model, this paper demonstrates that trade protection is not the necessary outcome with international product fragmentation. Empirical findings support the hypothesis that international division of labor has influenced the formation of North- South PTAs.preferential trading agreements, product fragmentation, trade policy