Preferential Trading Agreements and Economic Reforms in Developing Countries

How do domestic politics influence the formation of international institutions, and what are the effects of international institutions on domestic politics? In this policy paper, we examine how leaders use preferential trading agreements (PTAs) with the European Union and the United States to promote liberal economic policies. We argue that under democratization, new leaders would benefit the most from credible commitment and side payments to compensate vulnerable domestic constituencies for their losses. Our empirical analysis shows that under democratization, leader change greatly increases the probability that the government of a developing country begins treaty negotiations. We also demonstrate that PTAs induce liberalization in different sectors of the economy.