Why Do Countries Form Regional Trade Agreements? A Discrete-Time Survival Analysis

Abstract

This paper seeks to determine why countries form regional trade agreements. Using bilateral data from 1950 to 2013 for 468 trade agreements and 179 countries, I use survival analysis to examine the factors that determine the likelihood of two countries entering into a trade agreement at any point in time. Potential explanatory variables include prior trade flows, export distance, GDP, per-capita GDP, geography, culture, and institutions. The results show that trade, per-capita GDP, and similarities in culture and institutions increase the likelihood that two countries will form a regional trade agreement. Larger, more distant, and more isolated countries are less likely to form an RTA, as are country-pairs that are different in size.