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Lobbying, multisector trade and sustainability of free-trade agreements

Authors Qiu, Larry Dongxiao
Issue Date 2003-06
Summary This paper is concerned with the sustainability of free-trade areas. I begin with an FTA that is formed as a political equilibrium and examine conditions under which the FTA is sustainable, i.e., governments do not leave it. The sustainability of the FTA is influenced by governments' valuation on political contributions, discount factors, the lobbying position of the specific-interest group in intra-industry trade sector, and the sectoral coverage of the FTA. I find that (i) under certain conditions, the lobby-opposed FTA could be more sustainable than the FTA formed without political pressure; (ii) the lobby-supported FTA is more sustainable than the lobbyopposed FTA and the FTA formed without political pressure; and (iii) multisector trade enhances FTA sustainability. The last result holds because countries have different incentive constraints for FTAs in different sectors, and multisector trade allows them to transfer sustainability from strong ones to weak ones.
Language English
Format Working paper
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