The Farsighted Stability of Global Trade Policy Arrangements

We study the stability of trade policy arrangements under differentregulatory scenarios, with or without preferential trade agreements (PTAs).Unlike previous papers, we consider an extensive set of trade policyarrangements and allow for unlimited farsightedness of negotiating parties.In the standard three-country setup, we find global free trade (GFT) to beuniquely stable under symmetric endowments, with or without PTAs. When twocountries are smaller (larger) than the third, the availability of PTAsdecreases (increases) the stability of GFT. Moving further away fromsymmetry, GFT is not attainable, and without PTAs, the non-cooperative MFNregime can be the only stable outcome. The effect of (dis-)allowingPTAs thus depends on the size asymmetry of countries