Political competition and the strategic adoption of free trade agreements

Ornelas, Emanuel ORCID: 0000-0001-8330-8745 (2024) Political competition and the strategic adoption of free trade agreements. CEP Discussion Papers (CEPDP2043). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

I study how political competition affects the feasibility of free trade agreements (FTAs). I show that the possibility of political turnover creates strategic motivations for the formation of FTAs. Specifically, a government facing a high enough probability of losing power will have an incentive to form a trading bloc to 'tie the hands' of its successor. This incentive mitigates inefficiencies in the incumbent's decision to form FTAs, regardless of its bias toward special interests. An FTA can affect the likelihood of political turnover as well. Accounting for that effect, I show that an incumbent party with a known bias toward special interests could seek an FTA as a commitment device toward less distortionary policies, thereby enhancing its own electoral prospects. Overall, the analysis reveals the importance of considering the time horizon of policymakers when studying their decision to enter in FTAs.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2024 The Author
Divisions:	Management
Subjects:	H Social Sciences > HC Economic History and Conditions J Political Science > JF Political institutions (General) H Social Sciences > HF Commerce
JEL classification:	F - International Economics > F1 - Trade > F15 - Economic Integration F - International Economics > F1 - Trade > F13 - Commercial Policy; Protection; Promotion; Trade Negotiations; International Trade Organizations D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
Date Deposited:	19 Feb 2025 17:39
Last Modified:	19 Feb 2025 17:51
URI:	http://eprints.lse.ac.uk/id/eprint/126806

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