| One of the most salient trends in the world trading system in recent years is the proliferation of free trade agreements (FTAs). In this dissertation, I study the determinants and consequences of these agreements. The framework hinges on the endogeneity of the political interactions outlining the structure of protection set by the trading blocs against the imports from non-member countries.; I show that the elimination of the internal trade barriers of a trading bloc reduces the incentives for protection against outside firms. This generates a decline in the region's external tariffs---one that is deep enough to ensure an expansion of inter-regional trade. The changes in the political equilibrium also entail that only socially beneficial arrangements will gain political support. Moreover, FTAs are shown to raise the support for further liberalization on a multilateral basis as well.; Despite these findings, free trade agreements have drawbacks. By amplifying the outside countries' access to the integrating markets, FTA-induced trade creation lowers the latter's gains from reciprocal multilateral liberalization. This may induce non-members to withdraw their support for global free trade. For this reason, "regionalism" may prove harmful. However, contrasting with the existing literature, the paper reveals that the opposition to multilateralism may arise only from FTAs non-members.; I also account for the possibility of political turnover, showing that a trading bloc may be formed only because of such uncertainty. For instance, a government expecting to lose power may form an FTA only to "tie the hands" of its successor. Alternatively, a government may form an FTA to increase its reelection prospects. In either case, the driving force is the "rent dissipation" induced by FTAs, which reflects the lower incentives for lobbying against imports from outside countries and the consequent reduction of "political rents" that accompanies the formation of FTAs. Because of rent dissipation, an FTA compels future administrations to pursue less distortionary trade policies. Finally, I show that free trade agreements can be used also to reduce the likelihood of political unrest, being for this reason especially attractive for nascent/unstable democracies. |
