A Hierarchy of Preferences

Abstract

Bilateral trade agreements have proliferated rapidly within the last two decades, growing into a dense network of multiple ties between countries. The spread of preferential trade agreements (PTAs), however, is not uniform: some countries have signed a multitude of deals, while others remain much less involved. This article presents a longitudinal network analysis method to analyze the patterns of the formation of trade agreements, based on the mutual codetermination of network structure and agreement formation. The findings suggest that PTAs spread endogenously because of structural arbitrage effects in the network, and that they establish a hierarchy among countries. Rich countries form ties with each other and middle-income countries, who themselves create a horizontal layer of PTAs, but least-developed countries are left behind and do not form many ties. Supplanting the multilateral trade regime with preferential agreements therefore creates a system of highly asymmetrical relationships of weaker spokes around a few hubs.