Working Paper: NBER ID: w4597
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? And 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 Agreements; Political Economy; Lobby Groups
JEL Codes: F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lobby group influence (D72) | Political viability of FTA (F15) |
| Campaign contributions from lobby groups (D72) | Government's policy stance (E63) |
| Government's policy stance (E63) | Likelihood of FTA endorsement (F15) |
| Substantial campaign contributions (D72) | Favoring FTA over status quo (F13) |
| Exclusion of politically sensitive sectors (P26) | Enhanced political support for FTA (F15) |
| Negotiations for FTA (F15) | Political dynamic influencing outcome (D72) |