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Estimating two-step selection models, we find that more democratic governments are more likely to conclude preferential trade agreements (PTAs) and to agree to stricter investment provisions related to pre-establishment national treatment and investor–state dispute settlement in PTAs. This is surprising when considering the potentially high costs of litigation.

Our empirical estimations indicate that Aid for Trade (AfT) granted by OECD donors strengthens the trade relations of recipient countries with other developing countries. By focusing on South–South trade, we mitigate endogeneity concerns that have plagued analyses of trade between recipients and donors of AfT.