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Free Trade Networks With Transfers

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  • TAIJI FURUSAWA
  • HIDEO KONISHI

Abstract

The paper investigates the network of bilateral free trade agreements (FTA) in the context of a network formation game with transfers. Furusawa and Konishi (2002) show that without international transfers, countries with different industrialization levels may not sign an FTA, so that the global free trade network, in which every pair of countries sign an FTA, is not pairwise stable in general. We show in this paper that even if the world consists of fairly asymmetric countries, the global free trade network is pairwise stable when transfers between FTA signatories are allowed. Moreover, it is the unique pairwise stable network unless industrial commodities are highly substitutable from one another.

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Bibliographic Info

Article provided by Japanese Economic Association in its journal The Japanese Economic Review.

Volume (Year): 56 (2005)
Issue (Month): 2 ()
Pages: 144-164

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Handle: RePEc:bla:jecrev:v:56:y:2005:i:2:p:144-164

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References

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  1. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
  2. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Bloch, Francis & Jackson, Matthew, 2004. "The Formation of Networks with Transfers among Players," Working Papers 1194, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Taiji Furusawa & Hideo Konishi, 2003. "A Welfare Decomposition in Quasi-Linear Economies," Boston College Working Papers in Economics 569, Boston College Department of Economics.
  5. Kowalczyk, Carsten, 1989. "Trade Negotiations and World Welfare," American Economic Review, American Economic Association, vol. 79(3), pages 552-59, June.
  6. Sang-Seung, Yi, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good," Journal of International Economics, Elsevier, vol. 41(1-2), pages 153-177, August.
  7. Hatta, Tatsuo, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 1-21, February.
  8. Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July.
  9. Goyal, S. & Joshi, S., 1999. "Bilateralism and free trade," Econometric Institute Research Papers EI 9953-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  10. Hatta, Tatsuo & Fukushima, Takashi, 1979. "The welfare effect of tariff rate reductions in a many country world," Journal of International Economics, Elsevier, vol. 9(4), pages 503-511, November.
  11. Fukushima, Takashi & Kim, Namdoo, 1989. "Welfare improving tariff changes : A case of many goods and countries," Journal of International Economics, Elsevier, vol. 26(3-4), pages 383-388, May.
  12. Yi, Sang-Seung, 2000. "Free-Trade Areas and Welfare: An Equilibrium Analysis," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 336-47, May.
  13. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, vol. 34(3), pages 319-349, October.
  14. Freund, Caroline, 2000. "Multilateralism and the endogenous formation of preferential trade agreements," Journal of International Economics, Elsevier, vol. 52(2), pages 359-376, December.
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Citations

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Cited by:
  1. Noritsugu Nakanishi, 2011. "Farsightedly Stable FTA Structures," Discussion Papers 1114, Graduate School of Economics, Kobe University.
  2. Leopoldo Yanes, 2008. "R&D, Market Structure and Trade: A General Equilibrium Analysis," Discussion Papers Series 361, School of Economics, University of Queensland, Australia.
  3. Helpman, Elhanan & Antras, Pol & Aghion, Philippe, 2007. "Negotiating Free Trade," Scholarly Articles 3351239, Harvard University Department of Economics.
  4. Taiji Furusawa & Hideo Konishi, 2003. "Free Trade Networks," Working Papers 2003.55, Fondazione Eni Enrico Mattei.
  5. PAPACCIO, Anna, 2013. "Bilateralism and Multilateralism: a Network Approach," CELPE Discussion Papers 125, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
  6. Zhang, Jin & Cui, Zhiwei & Zu, Lei, 2014. "The evolution of free trade networks," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 72-86.

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