Alliance Reliability, Trade Preference, and Supranational Authority, 1945-2004.

I propose the security externality hypotheses of trade integration. First, since trade integration is an institutional effort to increase intraregional trade, it may produce security externalities of trade. However, not every state which agreed to trade integration obtains the same level of positive security externality. It depends upon the level of alliance commitments among them. Stronger intraregional alliance commitments are expected to have larger positive effects on trade integration. Second, given the uncertainties of international politics, alliance commitments alone may not guarantee the positive security externality. Even defense pacts may be incredible due to a high level of policy flexibility, which can reverse past commitments. In this sense, the interaction among (1) the level of alliance commitments (2) the number of domestic veto-points associated with allies' policy flexibility and (3) whether or not alliance pacts have been ratified are expected to have much stronger positive effects on trade integration. Third, if strong or reliable alliance commitments lead to a high level of trade integration, allies would delegate their sovereignty to supranational authority because costly signaling such as sovereignty-costs can create a screening process that prevents potential negative security externalities of trade. As a result, alliance and alliance reliability are expected to have strong positive effects on supranational authority of trade integration organizations. Statistical findings support these hypotheses very strongly. [ABSTRACT FROM AUTHOR]