We develop a new theoretical political economy framework called a `parallel contest' that emphasizes the political fight over trade agreement (TA) ratification within countries. TA ratiification is inherently uncertain in each country because anti- and pro-trade interests contest each other to in fluence their own government's ratification decision. As in the terms-of-trade theory of TAs, the TA removes terms-of-trade externalities created by unilateral tarifs. But, a TA also creates new terms-of-trade and local-price externalities in our framework due to endogenous ratification uncertainty combined with the requirement that each country ratifies the TA for it to go ahead. Thus, reciprocal TA liberalization fails to eliminate all terms-of-trade externalities.
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Matthew T. Cole, James Lake and Ben Zissimos
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