On the Viability of a Multilateral Trade Agreement: A Political-Economy Approach∗

The big picture issue this paper intends to address is on the incentive aspects of a multilateral trade liberalization. The paper builds on a framework originally introduced in Grossman and Helpman’s The Politics of Free-Trade Agreements (1995). The aim of that work was to explain the viability of free trade agreements (FTAs) between two countries in a political-economy framework. A simple extension to a three-country setting allows us to analyze whether FTAs are “building blocs ” or “stumbling blocs.” An illustration with specific functional forms serves to find conditions under which FTAs are, somehow, partial building blocs, i.e., a bilateral liberalization can be feasible when multilateral liberalization is not