Does Enforcement Matter? Judicialization in PTAs and Trade Flows

AbstractThis paper focuses on the variability of judicialization across preferential trade agreements (PTAs) and their impact on trade flows. We develop a categorization of PTAs that contrasts enforcement mechanisms with the level of trade policy discretion allowed by a trade agreement and the degree of flexibility allowed for members. Utilizing an original dataset of PTAs signed by countries in Asia, which has emerged as one of the most active regions of PTA formation and which exhibits wide variability in levels of judicialization, we compare the effects of trade policy discretion, flexibility provisions, and enforcement mechanisms in PTAs on trade flows. We examine the empirical strength of our theoretical framework distinguishing between discretion, flexibility, and enforcement using confirmatory factor analysis. The empirical analysis then goes on to examine their respective effects on trade flows. The results show that agreements with strong commitments, that is, those that remove more trade policy discretion from a government, lead to a greater expansion of trade between signatories. Enforcement and flexibility mechanisms, however, have mixed effects.