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Rent Destruction and the Political Viability of Free Trade Agreements

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  • Emanuel Ornelas

Abstract

This paper studies the political viabihty of free trade agreements (FTAs). The key element of the analysis is the "rent destruction" that these arrangements induce: by eliminating intrabloc trade barriers, an FT A lowers the incentives of import-competing industries to lobby for higher external tariffs, thereby inducing a reduction of the rents created in the lobbying process. Using a conventional competitive model, I show that the prospect of rent destruction can critically undermine (and in some cases rule out entirely) the political viability of welfare-reducing FTAs. This result contrasts sharply with findings from the earlier regionalism literature.

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  • Emanuel Ornelas, 2005. "Rent Destruction and the Political Viability of Free Trade Agreements," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1475-1506.
    • Handle: RePEc:oup:qjecon:v:120:y:2005:i:4:p:1475-1506.
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    File URL: http://hdl.handle.net/10.1162/003355305775097560
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