intra-industry trade, veto players, and the formation of

34
Introduction Theory Methods Results Supplemental Intra-industry Trade, Veto Players, and the Formation of Preferential Trade Agreements Timothy M. Peterson 1 Cameron G. Thies 2 1 Department of Political Science Oklahoma State University [email protected] 2 Department of Political Science University of Iowa [email protected] International Political Economy Society, 2011 meeting Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

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Page 1: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

Intra-industry Trade, Veto Players, and theFormation of Preferential Trade Agreements

Timothy M. Peterson1 Cameron G. Thies2

1Department of Political ScienceOklahoma State University

[email protected]

2Department of Political ScienceUniversity of Iowa

[email protected]

International Political Economy Society, 2011 meeting

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 2: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

BackgroundLiterature

Background

PTAs increasingly common

Yet, which states will form PTAs?

PTA formation as a competitive process

PTAs as building blocks or stumbling blocks

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 3: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

BackgroundLiterature

Background

PTAs increasingly common

Yet, which states will form PTAs?

PTA formation as a competitive process

PTAs as building blocks or stumbling blocks

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 4: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

BackgroundLiterature

Background

PTAs increasingly common

Yet, which states will form PTAs?

PTA formation as a competitive process

PTAs as building blocks or stumbling blocks

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 5: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

BackgroundLiterature

Background

PTAs increasingly common

Yet, which states will form PTAs?

PTA formation as a competitive process

PTAs as building blocks or stumbling blocks

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 6: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

BackgroundLiterature

Intra-industry trade and liberalization

Conventional wisdom: intra-industry trade reduces resistanceto liberalization (e.g., Balassa 1966; Aquino 1978)

However, intra-industry trade also has implications forcollective action (Gilligan 1997)

As such, when electoral interests reward narrow interests,intra-industry trade is associated with less liberalization (Kono2009)

But what about preferential liberalization?

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 7: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

BackgroundLiterature

Intra-industry trade and liberalization

Conventional wisdom: intra-industry trade reduces resistanceto liberalization (e.g., Balassa 1966; Aquino 1978)

However, intra-industry trade also has implications forcollective action (Gilligan 1997)

As such, when electoral interests reward narrow interests,intra-industry trade is associated with less liberalization (Kono2009)

But what about preferential liberalization?

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 8: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

BackgroundLiterature

Intra-industry trade and liberalization

Conventional wisdom: intra-industry trade reduces resistanceto liberalization (e.g., Balassa 1966; Aquino 1978)

However, intra-industry trade also has implications forcollective action (Gilligan 1997)

As such, when electoral interests reward narrow interests,intra-industry trade is associated with less liberalization (Kono2009)

But what about preferential liberalization?

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 9: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

BackgroundLiterature

Intra-industry trade and liberalization

Conventional wisdom: intra-industry trade reduces resistanceto liberalization (e.g., Balassa 1966; Aquino 1978)

However, intra-industry trade also has implications forcollective action (Gilligan 1997)

As such, when electoral interests reward narrow interests,intra-industry trade is associated with less liberalization (Kono2009)

But what about preferential liberalization?

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 10: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

ExpectationsHypothesis

Bilateral intra-industry trade and willingness to form PTAs

PTAs are less harmful when intra-industry trade is high

Gains from scaleImplications for relative productivityFirms less likely to be driven out of business throughpreferential liberalization

PTA formation bestows several benefits

Increased market powerPotential trade diversion

Non-participation in PTAs is costly

This relationship remains regardless of veto players

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 11: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

ExpectationsHypothesis

Bilateral intra-industry trade and willingness to form PTAs

PTAs are less harmful when intra-industry trade is high

Gains from scaleImplications for relative productivityFirms less likely to be driven out of business throughpreferential liberalization

PTA formation bestows several benefits

Increased market powerPotential trade diversion

Non-participation in PTAs is costly

This relationship remains regardless of veto players

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 12: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

ExpectationsHypothesis

Bilateral intra-industry trade and willingness to form PTAs

PTAs are less harmful when intra-industry trade is high

Gains from scaleImplications for relative productivityFirms less likely to be driven out of business throughpreferential liberalization

PTA formation bestows several benefits

Increased market powerPotential trade diversion

Non-participation in PTAs is costly

This relationship remains regardless of veto players

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 13: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

ExpectationsHypothesis

Bilateral intra-industry trade and willingness to form PTAs

PTAs are less harmful when intra-industry trade is high

Gains from scaleImplications for relative productivityFirms less likely to be driven out of business throughpreferential liberalization

PTA formation bestows several benefits

Increased market powerPotential trade diversion

Non-participation in PTAs is costly

This relationship remains regardless of veto players

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 14: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

ExpectationsHypothesis

Bilateral intra-industry trade and willingness to form PTAs

PTAs are less harmful when intra-industry trade is high

Gains from scaleImplications for relative productivityFirms less likely to be driven out of business throughpreferential liberalization

PTA formation bestows several benefits

Increased market powerPotential trade diversion

Non-participation in PTAs is costly

This relationship remains regardless of veto players

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 15: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

ExpectationsHypothesis

Bilateral intra-industry trade and willingness to form PTAs

PTAs are less harmful when intra-industry trade is high

Gains from scaleImplications for relative productivityFirms less likely to be driven out of business throughpreferential liberalization

PTA formation bestows several benefits

Increased market powerPotential trade diversion

Non-participation in PTAs is costly

This relationship remains regardless of veto players

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 16: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

ExpectationsHypothesis

Hypothesis

A higher proportion of intra-industry trade is associated with ahigher likelihood of PTA formation, regardless of the extent of vetoplayers

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 17: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Data

PTA and veto player data from Mansfield, Milner, andPevehouse (2007)

PTA, FTA, and CU data from 1951 to 2000Veto player measure captures government branches andpartisan composition thereof

Intra-industry trade measure calculated with commodity-leveldata from Feenstra et al. (2005)

Standard International Trade Classification (SITC) 4-digit leveldata

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 18: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Data

PTA and veto player data from Mansfield, Milner, andPevehouse (2007)

PTA, FTA, and CU data from 1951 to 2000

Veto player measure captures government branches andpartisan composition thereof

Intra-industry trade measure calculated with commodity-leveldata from Feenstra et al. (2005)

Standard International Trade Classification (SITC) 4-digit leveldata

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 19: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Data

PTA and veto player data from Mansfield, Milner, andPevehouse (2007)

PTA, FTA, and CU data from 1951 to 2000Veto player measure captures government branches andpartisan composition thereof

Intra-industry trade measure calculated with commodity-leveldata from Feenstra et al. (2005)

Standard International Trade Classification (SITC) 4-digit leveldata

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 20: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Data

PTA and veto player data from Mansfield, Milner, andPevehouse (2007)

PTA, FTA, and CU data from 1951 to 2000Veto player measure captures government branches andpartisan composition thereof

Intra-industry trade measure calculated with commodity-leveldata from Feenstra et al. (2005)

Standard International Trade Classification (SITC) 4-digit leveldata

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 21: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Data

PTA and veto player data from Mansfield, Milner, andPevehouse (2007)

PTA, FTA, and CU data from 1951 to 2000Veto player measure captures government branches andpartisan composition thereof

Intra-industry trade measure calculated with commodity-leveldata from Feenstra et al. (2005)

Standard International Trade Classification (SITC) 4-digit leveldata

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 22: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Statistical models

Unit of analysis: dyad-year, 1962-2000

Dependent variable: PTA signing

Statistical model: rare events logit (King and Zeng 2001) withcorrections for duration dependence and non-independence bydyad

Primary explanatory variables: intra-industry trade index,higher veto players (interacted)

Controls: third party PTAs, trade levels, development, majorpower status, alliance, conflict history, GATT/WTOmembership, distance, European dyad

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 23: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Statistical models

Unit of analysis: dyad-year, 1962-2000

Dependent variable: PTA signing

Statistical model: rare events logit (King and Zeng 2001) withcorrections for duration dependence and non-independence bydyad

Primary explanatory variables: intra-industry trade index,higher veto players (interacted)

Controls: third party PTAs, trade levels, development, majorpower status, alliance, conflict history, GATT/WTOmembership, distance, European dyad

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 24: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Statistical models

Unit of analysis: dyad-year, 1962-2000

Dependent variable: PTA signing

Statistical model: rare events logit (King and Zeng 2001) withcorrections for duration dependence and non-independence bydyad

Primary explanatory variables: intra-industry trade index,higher veto players (interacted)

Controls: third party PTAs, trade levels, development, majorpower status, alliance, conflict history, GATT/WTOmembership, distance, European dyad

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 25: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Statistical models

Unit of analysis: dyad-year, 1962-2000

Dependent variable: PTA signing

Statistical model: rare events logit (King and Zeng 2001) withcorrections for duration dependence and non-independence bydyad

Primary explanatory variables: intra-industry trade index,higher veto players (interacted)

Controls: third party PTAs, trade levels, development, majorpower status, alliance, conflict history, GATT/WTOmembership, distance, European dyad

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 26: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

DataModels

Statistical models

Unit of analysis: dyad-year, 1962-2000

Dependent variable: PTA signing

Statistical model: rare events logit (King and Zeng 2001) withcorrections for duration dependence and non-independence bydyad

Primary explanatory variables: intra-industry trade index,higher veto players (interacted)

Controls: third party PTAs, trade levels, development, majorpower status, alliance, conflict history, GATT/WTOmembership, distance, European dyad

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 27: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

TableFigureDiscussion

ResultsAbbreviated table for intra-industry trade, veto players, and PTA formation

All PTAs FTAs, CUs, CMs only CUs, CMs onlyModel 1 Model 2 Model 3 Model 4 Model 5 Model 6

Intra-industry trade index 1.527** 1.710* 1.854*** 2.092** 3.713*** 3.040***(0.478) (0.705) (0.433) (0.699) (0.365) (0.597)

Higher veto players -2.536*** -2.525*** -2.453*** -2.438*** -3.230*** -3.327***(0.244) (0.249) (0.255) (0.261) (0.353) (0.366)

IIT X higher veto players -0.432 -0.581 2.527(1.536) (1.492) (1.413)

Third-party PTAs 0.295*** 0.295*** 0.346*** 0.346*** 0.039 0.038(0.048) (0.048) (0.054) (0.054) (0.049) (0.049)

Lower dependence -20.044 -19.658 -32.249*** -31.712*** -28.271** -33.265***(10.778) (11.049) (9.564) (9.503) (8.943) (9.405)

Lower GDP -0.219*** -0.219*** -0.222*** -0.222*** -0.285*** -0.291***(0.029) (0.029) (0.030) (0.030) (0.039) (0.039)

Lower polity score 0.068*** 0.068*** 0.065*** 0.065*** 0.067*** 0.066***(0.007) (0.007) (0.007) (0.007) (0.009) (0.009)

Alliance 1.876*** 1.875*** 1.858*** 1.858*** 2.065*** 2.064***(0.087) (0.087) (0.091) (0.091) (0.112) (0.112)

Both in GATT/WTO 0.242** 0.243** 0.318*** 0.319*** 0.497*** 0.494***(0.079) (0.079) (0.082) (0.082) (0.103) (0.103)

ln Distance -0.199*** -0.198*** -0.204*** -0.204*** -0.187*** -0.189***(0.012) (0.012) (0.013) (0.013) (0.015) (0.015)

European dyad 0.282* 0.283* 0.341** 0.342** 0.231 0.208(0.119) (0.119) (0.119) (0.119) (0.145) (0.146)

Observations 173,724 173,724 173,724 173,724 173,724 173,724*** p≤0.001, ** p≤0.01, * p≤0.05; two-tailed testStandard errors clustered on the dyad

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 28: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

TableFigureDiscussion

Interaction effects

−4

−2

02

46

marg

inal effect of

intr

a−

industr

y tra

de

.1 .2 .3 .4 .5higher veto players

All PTAs

−4

−2

02

46

.1 .2 .3 .4 .5higher veto players

FTAs+

−4

−2

02

46

.1 .2 .3 .4 .5higher veto players

CUs+

−4

−2

02

46

marg

inal effect of

hig

her

veto

pla

yers

0 .02 .04 .06 .08intra−industry trade

All PTAs

−4

−2

02

46

0 .02 .04 .06 .08intra−industry trade

FTAs+

−4

−2

02

46

0 .02 .04 .06 .08intra−industry trade

CUs+

with 95% confidence bounds

Marginal effects of intra−industry trade and higher veto players

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 29: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

TableFigureDiscussion

Implications of our findings

Preferences and institutions appear to influence PTAformation

Implications for the structure of trade within and betweenPTAs

Implications for cooperation and conflict

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 30: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

TableFigureDiscussion

Implications of our findings

Preferences and institutions appear to influence PTAformation

Implications for the structure of trade within and betweenPTAs

Implications for cooperation and conflict

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 31: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

TableFigureDiscussion

Implications of our findings

Preferences and institutions appear to influence PTAformation

Implications for the structure of trade within and betweenPTAs

Implications for cooperation and conflict

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 32: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

Full table (part 1) for intra-industry trade, veto players, and PTA formationAll PTAs FTAs, CUs, CMs only CUs, CMs only

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6Intra-industry trade index 1.527** 1.710* 1.854*** 2.092** 3.713*** 3.040***

(0.478) (0.705) (0.433) (0.699) (0.365) (0.597)Higher veto players -2.536*** -2.525*** -2.453*** -2.438*** -3.230*** -3.327***

(0.244) (0.249) (0.255) (0.261) (0.353) (0.366)IIT X higher veto players -0.432 -0.581 2.527

(1.536) (1.492) (1.413)Third-party PTAs 0.295*** 0.295*** 0.346*** 0.346*** 0.039 0.038

(0.048) (0.048) (0.054) (0.054) (0.049) (0.049)Lower dependence -20.044 -19.658 -32.249*** -31.712*** -28.271** -33.265***

(10.778) (11.049) (9.564) (9.503) (8.943) (9.405)Lower GDP -0.219*** -0.219*** -0.222*** -0.222*** -0.285*** -0.291***

(0.029) (0.029) (0.030) (0.030) (0.039) (0.039)One major power -1.126*** -1.125*** -1.124*** -1.122*** -1.094*** -1.126***

(0.143) (0.144) (0.146) (0.146) (0.188) (0.189)Two major powers -1.405 -1.413 -1.301 -1.311 -0.865 -0.857

(0.859) (0.858) (0.878) (0.876) (0.654) (0.659)Lower polity score 0.068*** 0.068*** 0.065*** 0.065*** 0.067*** 0.066***

(0.007) (0.007) (0.007) (0.007) (0.009) (0.009)Observations 173,724 173,724 173,724 173,724 173,724 173,724*** p≤0.001, ** p≤0.01, * p≤0.05; two-tailed testStandard errors clustered on the dyad

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 33: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

Full table (part 2) for intra-industry trade, veto players, and PTA formationAll PTAs FTAs, CUs, CMs only CUs, CMs only

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6Alliance 1.876*** 1.875*** 1.858*** 1.858*** 2.065*** 2.064***

(0.087) (0.087) (0.091) (0.091) (0.112) (0.112)MID -0.228 -0.227 -0.159 -0.158 -0.386 -0.385

(0.291) (0.291) (0.293) (0.293) (0.383) (0.382)Both in GATT/WTO 0.242** 0.243** 0.318*** 0.319*** 0.497*** 0.494***

(0.079) (0.079) (0.082) (0.082) (0.103) (0.103)ln Distance -0.199*** -0.198*** -0.204*** -0.204*** -0.187*** -0.189***

(0.012) (0.012) (0.013) (0.013) (0.015) (0.015)European dyad 0.282* 0.283* 0.341** 0.342** 0.231 0.208

(0.119) (0.119) (0.119) (0.119) (0.145) (0.146)Time since onset 0.057** 0.057** 0.049* 0.049* -0.006 -0.007

(0.021) (0.021) (0.022) (0.022) (0.029) (0.029)

Time since onset2 -0.005*** -0.005*** -0.005*** -0.005*** 0.001 0.001(0.001) (0.001) (0.001) (0.001) (0.002) (0.002)

Time since onset3 0.000*** 0.000*** 0.000*** 0.000*** -0.000 -0.000(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)

Constant -1.856** -1.866*** -2.248*** -2.263*** 0.376 0.505(0.565) (0.566) (0.601) (0.604) (0.661) (0.669)

Observations 173,724 173,724 173,724 173,724 173,724 173,724*** p≤0.001, ** p≤0.01, * p≤0.05; two-tailed testStandard errors clustered on the dyad

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs

Page 34: Intra-industry Trade, Veto Players, and the Formation of

IntroductionTheory

MethodsResults

Supplemental

Intra-industry trade calculation

Commodity-level measure:

Gk∗ij = 1−

|X k∗ij − X k∗

ji |

X k∗ij + X k∗

ji

Correction for trade imbalances:

X k∗ij =

1

2

[(Xi + Mi )

2Xi

+

(Xj + Mj

)2Mj

]∗ X k

ij

X k∗ji =

1

2

[ (Xj + Mj

)2Xj

+(Xi + Mi )

2Mi

]∗ X k

ji

Dyad-year level measure:

Gij =n∑

k=1

Gk∗ij ∗

X kij + X k

ji

Xij + Xji

Peterson and Thies Intra-industry Trade, Veto Players, and PTAs