Saggi, Kamal and Yildiz, Halis Murat (2008): Bilateral trade agreements and the feasibility of multilateral free trade.
Download (520kB) | Preview
This paper compares stable Nash equilibria of two games of trade liberalization. In the FTA game, each country can form an FTA with either one of its trade partners, or both of them, or none of them. By contrast, in the No FTA game, each country must choose either no agreement or free trade. Under symmetry, free trade is uniquely stable under the No FTA game whereas the FTA game also admits a bilateral FTA as an equilibrium. However, there exist patterns of cost asymmetry for which the freedom to pursue bilateral FTAs is necessary for achieving global free trade.
|Item Type:||MPRA Paper|
|Original Title:||Bilateral trade agreements and the feasibility of multilateral free trade|
|Keywords:||Multilateral Trade Liberalization, Free Trade Agreements, GATT, Intraindustry Trade, Oilgopoly|
|Subjects:||F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation
|Depositing User:||Halis Murat Yildiz|
|Date Deposited:||28. Sep 2009 16:31|
|Last Modified:||12. Feb 2013 13:21|
Aghion, Philippe, Pol Antràs, and Elhanan Helpman, 2007. "Negotiating Free Trade." Journal of International Economics 73, 1-30.
Bagwell, Kyle, and Robert. W. Staiger, 1997. "Multilateral Tariff Cooperation During the Formation of Free Trade Areas." International Economic Review 38, 291-319.
Baldwin, Richard, 1995. "A Domino Theory of Regionalism", in Expanding European Regionalism: The EU's New Members, Baldwin, R, P. Haaparanta and J. Kiander (eds.), Cambridge University Press, 1995.
Bergstrom, Theodore and Hal R. Varian, 1985. "When are Nash Equilibria Independent of the Distribution of Agents' Characteristics." Review of Economic Studies LII, 715-718.
Bernheim, Douglas B., Bezalel Peleg and Michael Whinston, 1987. "Coalition-proof Nash Equilibria I. Concepts." Journal of Economic Theory 42, 1-12.
Bhagwati, Jagdish. The World Trading System at Risk, 1991, Princeton University Press, Princeton, NJ.
Bhagwati, Jagdish, Arvind Panagariya, and Pravin Krishna, eds., Trading Blocs, 1990, The MIT Press, Cambridge, MA.
Bond, Eric W., and Constantinos Syropoulos, 1996. "The Size of Trading Blocs: Market Power and World Welfare Effects." Journal of International Economics 40, 411-437.
Brander, J. A., Krugman, P.R., 1983. A `Reciprocal Dumping' Model of International Trade. Journal of International Economics 15, 313-323.
Brander, James A., and Barbara J. Spencer. "Tariff Protection and Imperfect competition." In ed. H. Kierzkowski Monopolistic Competition and International Trade, 1984, Oxford University Press, Oxford.
Conconi, Paola and Carlo Perroni, 2003. "Self-Enforcing International Agreements and Domestic Policy Credibility," mimeo.
Crawford, Jo-Ann and Roberto V. Fiorentino, 2005. "The Changing Landscape of Regional Trade Agreements," WTO Discussion Paper No. 8.
Chang, Won and Winters, L. Alan, 2002. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR." American Economic Review 92, 889-904.
Dutta, Bhaskar and Suresh Mutuswami, 1997. "Stable Networks." Journal of Economic Theory 76, 322-344.
Duttagupta, Rupa and Arvind Panagariya, 2006. "Free Trade Areas and Rules of Origin: Economics and Politics," mimeo.
Freund, Caroline, 2000. "Multilateralism and the Endogenous Formation of Preferential Trade Agreements." Journal of International Economics 52, 359-376.
Furusawa, Taiji and Hideo Konishi, 2007. "Free Trade Networks." Journal of International Economics 72, 310-335.
Goyal, Sanjeev and Sumit Joshi, 2006. "Bilateralism and Free Trade." International Economic Review 47, 749-778.
Grossman, Gene M. and Elhanan Helpman, 1995. "The Politics of Free-Trade Agreements." American Economic Review 85, 667-690.
Jackson, Matthew and Asher Wolinsky, 1996. "A Strategic Model of Social and Economic Networks." Journal of Economic Theory 71(1), 44-74.
Krishna, Pravin, 1998. "Regionalism and Multilateralism: A Political Economy Approach." The Quarterly Journal of Economics 113, 227-251.
Krugman, Paul R. "The Move Toward Free Trade Zones." in Policy Implications of Trade and Currency Zones: A Symposium Sponsored by the Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, Kansas City, 7-41, 1991.
Levy, Philip I., 1997. "A Political-Economic Analysis of Free Trade Agreements." American Economic Review 87, 506-519.
Maggi, Giovanni and Andres Rodiguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures." Journal of Political Economy 106, 574-601.
Maggi, Giovanni and Andres Rodiguez-Clare, 2007. "A Political Economy Theory of Trade Agreements," American Economic Review 97, 1374-1406.
McLaren, John, 1997. "Size, Sunk Costs, and Judge Bowker's Objection to Free Trade." American Economic Review 87, 400-420.
Ornelas, Emanuel, 2005a. "Trade Creating Free Trade Areas and the Undermining of Multilateralism." European Economic Review 49, 1717-1735.
Ornelas, Emanuel, 2005b. "Rent Destruction and the Political Viability of Free Trade Agreements." Quarterly Journal of Economics 120, 1475-1506.
Pascalis Raimondos-Møller and Alan D. Woodland, 2006. "Non-preferential Trading Clubs." Journal of International Economics 68, 79-91
Riezman, Raymond, 1999. "Can Bilateral Trade Agreements Help Induce Free Trade?" Canadian Journal of Economics 32, 751-766.
Saggi, Kamal, 2006. "Preferential Trade Agreements and Multilateral Tariff Cooperation." International Economic Review 47, 29-57.
Viner, Jacob, 1950. The Custom Union Issue. New York: Carnegie Endowment for International Peace. World Bank, 2005. Global Economic Prospects: Trade, Regionalism, and Development, The World Bank, Washington, D.C.
World Trade Organization, 2003. World Trade Report. Yi, Sang-Seung, 1996. "Endogenous Formation of Customs Unions under Imperfect Competition: Open Regionalism is Good." Journal of International Economics 41, 153-177.