ALLIANCES, PREFERENTIAL TRADING ARRANGEMENTS, AND INTERNATIONAL-TRADE

We analyze the effects of alliances and preferential trading arrangeme nts on bilateral trade flows. Both factors are likely to promote trade among members, but we argue that the interaction between them is cent ral to explaining patterns of commerce. The combination of an alliance , which creates political incentives for participants to engage in tra de, and a commercial institution, which liberalizes trade among member s, is expected to provide a considerable impetus to commerce among par ties to both. The results of our quantitative analyses support these a rguments. Both alliances and preferential trading arrangements strongl y affected trade from 1960 to 1990, and allies that included a major p ower conducted considerably more trade than their nonmajor-power count erparts. Moreover, the interaction between alliances and preferential trading arrangements is fundamental to explaining patterns of bilatera l commerce: Parties to a common preferential trading arrangement and a common alliance engage in markedly greater trade than do members of e ither type of institution but not both.