Regional free trade and social integration

Abstract

This paper analyzes recent free trade arrangements from a positive political economy perspective. In contrast to most other literature which fails to take into account geographical factors it is argued here that proximity and transportation costs play an important role in trade arrangements. Another important also largely neglected factor is the degree of social cohesion in terms of labor standards among potential trading partners. A political support maximizing government will consider these factors when balancing political support from free traders and protectionists.