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Dynamic preferential trade agreement formation and the role of political economy

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  • Eric Conglin Chi
  • Halis Murat Yildiz

Abstract

Using a dynamic preferential trade agreement (PTA) formation model, we show that political biases in exporting and import‐competing sectors substantially impact the extent of PTA formation. While both exclusion and free riding incentives constrain the expansion to global free trade in a free trade agreement (FTA) game, only the former incentive arises in a customs union (CU) game. When we endogenize the choice between FTAs and CUs, the tension between the flexibility benefit of FTAs and the coordination benefit of CUs reveals that FTAs always serve as PTA building blocks while CUs may serve as PTA building or stumbling blocks.

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  • Eric Conglin Chi & Halis Murat Yildiz, 2024. "Dynamic preferential trade agreement formation and the role of political economy," Economic Inquiry, Western Economic Association International, vol. 62(2), pages 748-781, April.
    • Handle: RePEc:bla:ecinqu:v:62:y:2024:i:2:p:748-781
    DOI: 10.1111/ecin.13199
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