Bipolarity, Multipolarity, and Free Trade

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Abstract
Recent literature typically attributes the relative scarcity of open international markets to the prisoner's dilemma structure of state preferences with respect to trade. I argue that the prisoner's dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system: security externalities. Explicit consideration of these effects suggests that a bipolar international political system has an advantage relative to its multipolar counterpart with respect to the opening of markets among states. Less credible exit threats and stronger incentives to engage in altruism within its alliances explain the advantage of a two-power system.