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Journal of Economic Integration 2008 June;23(2) :237-271.
DOI: https://doi.org/10.11130/jei.2008.23.2.237
The Political Economy of Free Trade Agreements: an Empirical Investigation
Xuepeng Liu 
Kennesaw State University
Copyright ©2008 Journal of Economic Integration
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.

JEL classification: F15, F12

Keywords: Free trade agreements | Political economy | Inequality | Median voter model | Lobbying model | Duration analysis
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