| Do free trade agreements (FTAs) help or hinder multilateral trade liberalization? This question, though much debated, remains unanswered because (1) the debate has been polarized and (2) there has been virtually no systematic empirical research. This dissertation advances this debate in several ways. First, it identifies conditions under which FTAs help and hinder broader trade liberalization: FTAs help such liberalization when members' intra- and extra-FTA comparative advantages are similar and hinder it when the opposite is true. Second, it presents rigorous short-run and long-run empirical tests of these hypotheses. The short-run test examines the effects of FTAs on Most Favored Nation tariff changes in the 1980s and 1990s. The long-run test examines the impact of the European Free Trade Association from its formation in 1960 to 1992. Both tests provide strong support for my hypotheses. Third, it presents a computer simulation that models both the formation and the effects of FTAs. The simulation indicates that my hypotheses are sound, but only when the rules of the multilateral trading system are taken into account. The dissertation as a whole demonstrates that we cannot make blanket statements about the effects of FTAs. Rather, we must investigate the conditions under which they help and hinder broader trade liberalization. |
