Economic reform and service liberalization in developing countries: Can preferential trade agreements help?

This chapter offers a survey of the literature exploring the effect of preferential trade agreements (PTAs) on economic reform. More specifically, I discuss recent studies showing that the formation of North-South PTAs is associated with the implementation of microeconomic reforms – the privatization of state-owned enterprises, for instance – in developing countries. One of the key goals of the chapter is to pin down the mechanisms of the PTA-reform nexus. I do so by covering theories which argue that PTAs act as an instrument of power used by Northern countries to exploit concessions from Southern countries or to act as a signalling device or a credible commitment. I devote particular attention to the last mechanism, showing that PTAs allow leaders to tie their hands when it comes to reform.