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A Political Economy Analysis of Preferential Trading and Multilateralism

  • Pravin Krishna

    (Brown University)

This paper examines the impact of Free Trade Areas (FTAs) on the incentives for multilateral liberalization and challenges the contention that Free Trade Areas are superior to GATT style (multilateral) trade liberalization as a way of getting to multilateral free trade for all. Incorporating political economy factors in a model of trade with imperfect competition in segmented markets, this paper reaches two conclusions: First, that preferential arrangements which divert trade away from the rest of the world are more likely to be supported politically, and second, that such preferential arrangements will reduce member country incentives for multilateral liberalization. It is also argued that in some cases this reduction in incentives could be critical: Multilateral liberalization that is initially feasible could be rendered infeasible by preferential arrangements. The larger the trade diversion resulting from the preferential arrangement, the more likely this will be the case.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume22/V22N4P477_483.pdf
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Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 22 (1996)
Issue (Month): 4 (Fall)
Pages: 477-483

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Handle: RePEc:eej:eeconj:v:22:y:1996:i:4:p:477-483
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  1. Baldwin, Richard, 1993. "A Domino Theory of Regionalism," CEPR Discussion Papers 857, C.E.P.R. Discussion Papers.
  2. Pravin Krishna, 1998. "Regionalism And Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 227-250, February.
  3. Panagariya, Arvind & Findlay, Ronald & DEC, 1994. "A political - economy analysis of free trade areas and customs unions," Policy Research Working Paper Series 1261, The World Bank.
  4. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  5. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-19, September.
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