How do international commitments shape domestic policy? We argue that trade agreements affect how governments manage global market risk. Previous research argues that governments use social insurance to mitigate economic uncertainty. We argue that governments can manage uncertainty by using preferential trade agreements (PTAs) to reduce volatility. Our formal model shows that economic volatility increases the provision of social insurance by an office-seeking government; but as a government joins more PTAs, it will provide less social insurance. Our empirical tests show that: (1) PTAs reduce volatility in the terms of trade, (2) volatility increases social insurance, and (3) PTAs reduce social insurance. We conclude that trade agreements have, to date, understudied and important consequences for domestic policy.
Wednesday, April 3, 2013
Johns & Kucik: Trade Agreements as Social Insurance
Leslie Johns (Univ. of California, Los Angeles - Political Science) & Jeffrey Kucik (Univ. College London - Political Science) have posted Trade Agreements as Social Insurance. Here's the abstract: