Preferential Trade Agreements and bilateral international relationships

Preferential Trade Agreements are a major aspect of international trade and are the focus of many discussions of current policy and trade discussions. The common belief is that the current GATT/WTO policies of tariff manipulation and market access are wholly incapable of their desired impact due to the vast complexities in the global trade environment. I study these established methods in a property rights framework and show these approaches are not as ineffective as believed. There are two competing effects that a PTA has on relationship-specific investment, and for sufficiently productive firms, a trade agreement yields positive welfare gains.