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Bilateralism vs. multilateralism: Role of political economy for the prospect of multilateral free trade

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  • Eric Conglin Chi
  • Halis Murat Yildiz

Abstract

In this paper, we use a unified framework of competing exporters and competing importers models where political biases in both exporting and import‐competing sectors influence governments' decisions in trade agreement formation and external tariff setting. Using an endogenous trade agreement formation model, we show that the relative strength of political biases in import‐competing and exporting sectors are pivotal in determining the free‐riding incentives, exclusion incentives and whether the ability to form free trade areas acts as building or stumbling blocks towards multilateral free trade. When the political biases toward exporting and import‐competing sectors are sufficiently weak, the ability to form free trade agreements acts as strong building blocks toward free trade. However, when the political bias towards exporting sectors is at the intermediate range and political bias towards import‐competing sectors is sufficiently strong, the ability to form free trade agreements acts as strong stumbling blocks. Bilatéralisme et multilatéralisme : le rôle de l'économie politique dans la perspective du libre‐échange multilatéral. Dans cet article, nous utilisons un cadre unifié de modèles d'exportateurs et d'importateurs concurrents où les partis pris politiques dans les secteurs exportateurs et importateurs concurrents influencent les décisions des gouvernements en matière de formation d'accords commerciaux et de fixation des tarifs extérieurs. À l'aide d'un modèle endogène de formation d'accords commerciaux, nous montrons que la force relative des partis pris politiques dans les secteurs importateurs et exportateurs est essentielle pour déterminer les incitations au resquillage boursier, les incitations à l'exclusion et si la capacité à former des zones de libre‐échange (ZLE) constitue une pierre angulaire ou une pierre d'achoppement pour le libre‐échange multilatéral. Lorsque les partis pris politiques en faveur des secteurs exportateurs et des secteurs en concurrence avec les importations sont suffisamment faibles, la capacité à former des ZLE constitue un élément de base solide pour le libre‐échange. Toutefois, lorsque le parti pris politique en faveur des secteurs exportateurs se situe dans une fourchette intermédiaire et que le parti pris politique en faveur des secteurs en concurrence avec les importations est suffisamment fort, la capacité à conclure des ZLE constitue une véritable pierre d'achoppement.

Suggested Citation

  • Eric Conglin Chi & Halis Murat Yildiz, 2024. "Bilateralism vs. multilateralism: Role of political economy for the prospect of multilateral free trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(3), pages 870-900, August.
    • Handle: RePEc:wly:canjec:v:57:y:2024:i:3:p:870-900
    DOI: 10.1111/caje.12723
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    References listed on IDEAS

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