The Political Economy of Free Trade Agreements: an Empirical Investigation

Xuepeng Liu

Journal of Economic Integration, 2008, vol. 23, 237-271

Abstract:

This paper studies how income inequality affects the probability of signing free trade agreements (FTAs) in a political economy framework. The median voter approach to FTA formation within a Heckscher-Ohlin framework predicts that an increase in inequality lowers the desirability of an FTA if the partner country is relatively labor abundant, ceteris paribus, and raises the desirability of such an agreement if the partner country is relatively capital abundant. The lobbying model based on the argument of the free rider problem, however, offers the opposite predictions. This paper proposes a duration analysis for bilateral FTA panel data and finds strong support for the predictions from the median voter model.

Keywords: Free trade agreements; Political economy; Inequality; Median voter model; Lobbying model; Duration analysis (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0433

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