Proceedings of the 38th International Academic Conference, Prague

THE IMPACTS OF DOMESTIC POLITICAL ECONOMIC STRUCTURES ON SUSTAINABLE TRADE AGREEMENTS BETWEEN ASYMMETRIC COUNTRIES

JISOO SON

Abstract:

This paper examines how the domestic political economic structures influence the bargaining power of small economies facing market dominant large trade partner. Through the analysis of the incentive compatibility conditions of small economies and large economies facing different political stances of domestic interest groups, we demonstrate that when the politically influential interest groups of large economies take the political stance supporting free trade regime, small economies’ bargaining power can be improved. This result stems from the reduced equilibrium transfer from small economies to keep the trade equilibrium as a stable equilibrium due to the pro-free trade political pressures imposed by the interest groups of large economies. This result provides good theoretical insights on why most small economies are so eager to keep close connection with the interest groups in large economies

Keywords: Stable trade agreement, Domestic political interest groups, Bargaining power of small economies, equilibrium transfer to satisfy incentive compatibility conditions

DOI: 10.20472/IAC.2018.038.038

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