The endogenous formation of sustanaible trade agreements

This paper addresses the endogenous formation of trade agreements in a three - country model of imperfect competition. While the requirement of sustainability of preferential trade areas has often been ignored in the literature, I construct a framework for predicting which trade agreements form when sustainability is explicitly included as a constraint on the formation of the cooperative agreements. It is found that the introduction of a self-enforcement requirement reduces the overall scope for a cooperative trade agreements, and that preferential trade areas can be stepping stones or stumbling blocks depending on the size of relative demand between countries.