Signaling for aid? Effects of signing democracy-related provisions in preferential trade agreements

Aid for Trade has been a key instrument established by donor agencies to support the implementation of trade-related commitments to the World Trade Organization and preferential trade agreements (PTAs). Yet relatively little is known about the links between the signature of non-trade provisions in PTAs and foreign aid. Democracy-related provisions are of particular relevance, as they potentially offer a unique mechanism for democratic donors to link good governance criteria to economic interests. I theorize that democracy-related provisions can lead to increases in aid through establishing institutional frameworks that enhance long-term cooperation and monitoring. By contrast, I do not expect recipients to receive additional foreign aid support to reward credible commitments to democratization, to implement such provisions, nor as a by-product of deep trade commitments. Overall, I find support for these hypotheses, estimating a staggered difference-in-differences model over 100 mixed-regime country pairs from 1966 to 2019. This paper demonstrates that signing democracy-related provisions can enable signatories to secure aid deals, although not aimed at democratization or the implementation of such provisions.