Government’s Powers and FTAs: The Effect of Domestic and Foreign Powers on Multilateral Trade

Abstract

This paper elaborates on the government's powers - both at the domestic level and over foreign countries. The domestic power is the power against domestic lobbies, and the foreign one is the government's international power. To do so, this paper tries to evaluate the effects of these powers on the formation of free trade agreements (FTAs). The theoretical framework follows an oligopolistic-political economy. The main findings of the study show that the optimal solution for the government is paying more attention to the national welfare than lobbies' welfare. In addition, larger FTA helps the government have lower dependency on the lobbies. The paper indicates that the effects of foreign power on FTAs and shows that a larger FTA does not have always positive effects on expanding the FTAs. The effects depend on both domestic and foreign powers that are precisely described through this paper. The issues dealt here are not only theoretically interesting but are relevant while designing domestic and foreign policies.