TY - JOUR AU - Aghion,Philippe AU - Antràs,Pol AU - Helpman,Elhanan TI - Negotiating Free Trade JF - National Bureau of Economic Research Working Paper Series VL - No. 10721 PY - 2004 Y2 - September 2004 UR - http://www.nber.org/papers/w10721 L1 - http://www.nber.org/papers/w10721.pdf N1 - Author contact info: Philippe Aghion Department of Economics Harvard University 1805 Cambridge St Cambridge, MA 02138 Tel: 617/495-6675 Fax: 617/495-4341 E-Mail: paghion@fas.harvard.edu Pol Antràs Department of Economics Harvard University 1805 Cambridge Street Littauer Center 207 Cambridge, MA 02138 Tel: 617/495-1236 Fax: 617/495-8570 E-Mail: pantras@fas.harvard.edu Elhanan Helpman Department of Economics Harvard University 1875 Cambridge Street Cambridge, MA 02138 Tel: 617-495-4690 Fax: 617-495-7730 E-Mail: ehelpman@harvard.edu AB - We develop a dynamic bargaining model in which a leading country endogenously decides whether to sequentially negotiate free trade agreements with subsets of countries or engage in simultaneous multilateral bargaining with all countries at once. We show how the structure of coalition externalities shapes the choice between sequential and multilateral bargaining, and we identify circumstances in which the grand coalition is the equilibrium outcome, leading to worldwide free trade. A model of international trade is then used to illustrate equilibrium outcomes and how they depend on the structure of trade and protection. Global free trade is not achieved when the political-economy motive for protection is sufficiently large. Furthermore, the model generates both building bloc' and stumbling bloc' effects of preferential trade agreements. In particular, we describe an equilibrium in which global free trade is attained only when preferential trade agreements are permitted to form (a building bloc effect), and an equilibrium in which global free trade is attained only when preferential trade agreements are forbidden (a stumbling bloc effect). The analysis identifies conditions under which each of these outcomes emerges. ER -