On the viability of a multilateral trade agreement: a political-economy approach

Abstract

The big picture issue this paper intends to address is on the incentive aspects of a multilateral trade liberalization. The paper builds on a framework originally introduced in Grossman and Helpman’s The Politics of Free-Trade Agreements (1995). The aim of that work was to explain the viability of free trade agreements (FTAs) between two countries in a political-economy framework. A simple extension to a three-country setting allows us to analyze whether FTAs are “building blocs” or “stumbling blocs”. An illustration with specific functional forms serves to find conditions under which FTAs are, somehow, partial building blocs, i.e., a bilateral liberalization can be feasible when multilateral liberalization is not.