Endogenous Free Trade Agreements and Foreign Lobbying

Andrey Stoyanov

Review of International Economics, 2014, vol. 22, issue 3, 561-577

Abstract: This paper assesses the political viability of free trade agreements (FTAs) in the presence of lobbying by organized foreign interest groups. The assessment is based on a model in which external tariffs and the decision to form an FTA are endogenously determined. The findings demonstrate that, in the presence of an organized lobby group in a prospective partner country, an FTA may initiate an increase in the level of protection against imports from third countries and impede trade with non-member countries. Further, this study finds that a foreign lobby may encourage the local government to enter a welfare-reducing trade-diverting FTA. Finally, this paper shows that an FTA increases the lobbying power of the organized lobby groups of the member countries, which can potentially obstruct the viability of welfare-improving multilateral trade liberalization.

Date: 2014
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