Negotiating Free Trade

Bibliographic Data

ID19081194
AuthorsPhilippe Aghion (0000-0002-9019-1677, corresponding author), Pol Antràs, Elhanan Helpman
Year2004
Publication date2004-09-01
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueNational Bureau of Economic Research (REPOSITORY)
PublisherNational Bureau of Economic Research (PUBLISHER)
DOI10.3386/w10721
OpenAlexW3124826481
LanguageEN
Citations received3
References cited1

We develop a dynamic bargaining model in which a leading country endogenously decides whether to sequentially negotiate free trade agreements with subsets of countries or engage in simultaneous multilateral bargaining with all countries at once. We show how the structure of coalition externalities shapes the choice between sequential and multilateral bargaining, and we identify circumstances in which the grand coalition is the equilibrium outcome, leading to worldwide free trade. A model of international trade is then used to illustrate equilibrium outcomes and how they depend on the structure of trade and protection. Global free trade is not achieved when the political-economy motive for protection is sufficiently large. Furthermore, the model generates both "building bloc" and "stumbling bloc" effects of preferential trade agreements. In particular, we describe an equilibrium in which global free trade is attained only when preferential trade agreements are permitted to form (a building bloc effect), and an equilibrium in which global free trade is attained only when preferential trade agreements are forbidden (a stumbling bloc effect). The analysis identifies conditions under which each of these outcomes emerges

Economics · Externality · Free trade · Free trade agreement · International economics · International free trade agreement · International trade · Microeconomics · Negotiation · Political science · Trade barrier · Trade diversion · Economic Policies and Impacts · Global trade and economics · Merger and Competition Analysis

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