Preferential Trade Agreements under Declining American Hegemony

We examine the international determinants of the formation of preferential trade agreements (PTAs) according to the theory of hegemonic stability. The main conclusions are as follows. First, as the theory of hegemonic stability argues, the lack of a stable hegemon fosters the formation of PTAs. When hegemony is measured by trade share and investment share in the global economy, the erosion of hegemony fosters PTAs. Second, hegemony measured by GDP share has a positive effect on PTA formation; however, this measure is not consistent with the theory’s prediction. Third, improvement in the level of democracy worldwide is unrelated to the formation of PTAs.