The GATT/WTO and preferential trade agreements help member countries to achieve further gains from trade by promoting deeper trade liberalization. In general, free trade does not automatically follow from individualistic behavior. A major reason for this has to do with the existence of monopolistic power in trade. Trade liberalization requires that countries behave cooperatively and reciprocall...

By Xuepeng Liu Abstract: In his paper in the American Economic Review, Levy (1997) develops a political economy model of free-trade agreements (FTAs). He emphasizes that the homotheticity restriction of the production function assumed for the differentiated product is crucial for his model. This comment shows that this homotheticity assumption is unnecessary and actually problematic. It is prob...

We study the relationship between participation in free trade agreements (FTAs) and the sustainability of democracy. Our model shows that FTAs can critically reduce the incentive of authoritarian groups to seek power by destroying protectionist rents, thus making democracies last longer. This gives governments in unstable democracies an extra motive to form FTAs. Hence, greater democratic insta...

Will continual expansion of preferential trade agreements (PTAs) lead to global free trade? In the presence of multilateral negotiations, are PTAs necessary for, or will they necessarily lead away from, global free trade? This paper shows both answers depend crucially on a commitment problem faced by PTA members. Because the commitment problem revolves around a desire to commit to not form futu...

In this paper we study the consequences of regional free trade agreements (FTAs) for global free trade. In the context of a three-country, two-good general equilibrium trade model, we derive stable Nash equilibria of two coalition formation games of trade liberalization: One in which FTAs are ruled out, and another in which countries have the option to form FTAs. Our analysis reveals that there...

Abstract We explore the new roles of rules origin (ROO) when multinational enterprises (MNEs) manipulate their transfer prices to avoid a high corporate tax. The ROO under free trade agreement (FTA) require exporters identify exports be eligible for preferential tariff rate. find that value-added criterion restricts abusive pricing by MNEs. Interestingly, an FTA with can induce MNEs shift profi...