Bilateral Free Trade Agreements – How do Countries Choose Partners?

Abstract

While the debate on whether countries should or should not sign trade agreements with selected partners continues, governments have significantly stepped up the rate at which they enter into such agreements. A number of such agreements have been signed lately and many more are under negotiation. Multinational firms get impacted by these agreements irrespective of whether these are beneficial to the participating economies in particular or to the world economy in general. Bilateral free trade agreements constitute a very large proportion of the trade agreements between countries. Knowing which two countries are more likely to sign a free trade agreement can help multinational firms minimize risks or maximize opportunities arising from the recent proliferation of such agreements. This paper finds that geographical distance and relative strength of industry pressure groups are two factors that govern which two countries are more likely to enter into a bilateral free trade agreement with each other.