Negotiating Free Trade / Philippe Aghion, Pol Antràs, Elhanan Helpman.

Format:

Book

Author/Creator:

Aghion, Philippe.

Contributor:

National Bureau of Economic Research.

Antràs, Pol.

Helpman, Elhanan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10721.

NBER working paper series no. w10721

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

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.

Notes:

Print version record

September 2004.