Template-Type: ReDIF-Paper 1.0
Author-Name: Halis Murat Yildiz
Author-X-Name-First: Halis
Author-X-Name-Last: Yildiz
Author-Email: hyildiz@economics.ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada

Author-Name: Andrey Stoyanov
Author-X-Name-First: Andrey
Author-X-Name-Last: Stoyanov
Author-Email: andreyst@yorku.ca
Author-Workplace-Name: Department of Economics, York University, Toronto, Canada

Title: Preferential versus Multilateral Trade Liberalization and the Role of Political Economy

Abstract: In this paper we analyze the e¤ect of the freedom to pursue preferential trade liberalization,
permitted by Article XXIV of the GATT, on country?'s incentives to participate in multilateral
negotiations and on feasibility of global free trade. We present a model, in which countries choose
whether to participate in preferential or multilateral trade agreements under political pressures
from domestic special interest groups. We show that heterogeneity in political preferences across
countries plays an important role in determining the relative merits of preferential and multilateral
approaches to trade liberalization. On one hand, the opportunity to liberalize preferentially may
be necessary to induce countries with strong political motivations to participate in multilateral
free trade negotiations. On the other hand, when countries share similar political preferences,
multilateral free trade that would have been politically supported otherwise becomes unattainable
if countries can pursue preferential liberalization.

Classification-JEL: F12, F13, C72
Keywords: Free Trade Agreements, Multilateralism, Political Economy, Coalition-proof Nash Equilibrium
Length: 41 pages
Creation-Date: 2015-09
Number: 052
File-URL: http://economics.ryerson.ca/workingpapers/wp052.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp052