Political economy of preferential trade agreement: the case of bilateral asymmetric negotiation

Abstract

The purpose of this paper is to analyse the political economy of preferential trade agreements based on a sequential non-cooperative Stackelberg political game between a large economy and a small one, in which the political dispute of rival lobby groups defines the unilateral stance of both governments in the first stage; and the Stackelberg "coalition-proof" equilibrium defines the free trade agreement format in the second stage. Finally, a few modifications in the initial game structure are discussed in order to enhance the small economy's negotiation power. The political economy model is applied to FTAA case.

Do the Preferential Trade Agreements are Economic or Foreign Policy instruments? Evidance from Pakistan

“…Trade agreements are purely an economic phenomenon that is designed to impact and boost a state's economic growth and development, but in reality, these agreements have a political side to them as well. Low (2004), Levy (1997), Gu and Shen (2014), Helpmen (1995) and Motta (2007) have confirmed and endorsed this reality.…”