Abstract

The purpose of this paper is to analyse the political economy of preferential trade agreements based on a sequential non-cooperative Stackelberg political game between a large economy and a small one, in which the political dispute of rival lobby groups defines the unilateral stance of both governments in the first stage and the Stackelberg “coalition-proof” equilibrium defines t the free trade agreement format in the second stage. Finally, a few modifications in the initial game structure are discussed in order to enhance the small economy’s negotiation power. The political economy model is applied to FTAA case.

JEL Classification: F02, F13, F15.