Working Paper: CEPR ID: DP908
Authors: Gene M. Grossman; Elhanan Helpman
Abstract: Suppose that an opportunity arises for two countries to negotiate a free trade agreement (FTA). Will an FTA between these countries be politically viable? If so, what form will it take? We address these questions using a political economy framework that emphasizes the interaction between industry special interest groups and an incumbent government. We describe the economic conditions necessary for an FTA to be an equilibrium outcome, both for the case when the agreement must cover all bilateral trade and when a few, politically sensitive sectors can be excluded from the agreement.
Keywords: free trade agreement; regional integration; political economy; trade policy
JEL Codes: D78; F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FTA viability (L93) | Government endorsement (G28) |
| Welfare gains for average voter (D69) | FTA viability (L93) |
| Adversely affected interest groups fail to coordinate opposition (D72) | FTA viability (L93) |
| Profit gains for exporters (F10) | Government endorsement (G28) |
| Campaign contributions from exporters (F10) | Government endorsement (G28) |
| Exclusion of sensitive sectors (L52) | Political prospects for FTA (F15) |