Publications
- Negotiating free trade
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- by Aghion, Philippe; Antràs, Pol; Helpman, Elhanan
- 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.
- Publication Type: Published Paper
- Published Date: September 2007
- Field of Interest: International Economics
- Aghion, Philippe, Pol Antràs, and Elhanan Helpman. "Negotiating Free Trade," Journal of International Economics 73, no. 1 (September 2007): 1-30.
