On The Viability of A Multilateral Trade Agreement: A Political-Economy Approach

The big picture issue this paper intends to address is on the incentive aspectsof a multilateral trade liberalization. The paper builds on a framework originallyintroduced 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 extensionto a three-country setting allows us to analyze whether FTAs are "buildingblocs" or "stumblirig blocs." An illustration with specific functional forms serves tofind conditions under which FTAs are, somehow, partial building blocs, i.e., a bilateral liberalizationcan be feasible when multilateral liberalization is not.