In this paper we examine the connection between intra-industry trade and entrance into PTAs between 1962 and 2000. Given that PTA insiders typically benefit relative to outsiders, states face a strategic incentive to sign these agreements or else fall behind in global competitiveness. We point to bilateral intra-industry trade as a determinant of which states will form preferential trade agreements because (1) firms benefit from larger markets and increased efficiency, potentially gaining relative to firms in states left out of the agreement; (2) intra-industry trade suggests similar productivity, such that firms in member states are less likely to be harmed by preferentially reduced trade barriers; and (3) strategic considerations are lessened in the absence of inter-industry specialization. our results have important implications for the study of preferential trade agreements, as preexisting trade relationships provide information regarding the preferences of domestic actors, and, as such, are useful to gauge the political willingness to integrate economies.
