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Gradualism in Trade Agreements with Asymmetric Countries

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Author Info
Bond, Eric W
Park, Jee-Hyeong

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Abstract

This paper uses recursive methods to characterize the payoff frontier of self-enforcing trade agreements between countries of asymmetric size. We show that at points on the frontier where only one country's incentive constraint binds, the efficient agreement will be a non-stationary one that starts with a positive trade distortion but eventually reaches free trade. Our analysis illustrates how (i) relative country size, (ii) consumption smoothing incentives, and (iii) sunk investments affect the form of efficient trade agreements. In contrast to previous work on gradualism, our results are obtained from a model in which the economic environment is stationary. Copyright 2002 by The Review of Economic Studies Limited

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 69 (2002)
Issue (Month): 2 (April)
Pages: 379-406
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Handle: RePEc:bla:restud:v:69:y:2002:i:2:p:379-406

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  1. Recursive Macroeconomic Theory
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  1. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, EconWPA. [Downloadable!]
  3. Eric Bond, 2009. "Paths of efficient self-enforcing trade agreements," Economic Theory, Springer, vol. 41(1), pages 85-104, October. [Downloadable!] (restricted)
  4. Matthew Cole & M. Ryan Haley & Aaron Lowen, 2008. "A note on bilateral trade agreements in the presence of irreversible investment and deferred negotiations," Economics Bulletin, Economics Bulletin, vol. 6(34), pages 1-10. [Downloadable!]
  5. Daniel Seidmann, 2006. "Preferential Trading Arrangements as Strategic Positioning," Discussion Papers 2006-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
  6. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems. [Downloadable!]
    • Kyle Bagwell & Robert W. Staiger, 2002. "GATT-think," Discussion Papers 0102-39, Columbia University, Department of Economics. [Downloadable!]
  7. Fuchs, William & Lippi, Francesco, 2003. "Monetary Union with Voluntary Participation," CEPR Discussion Papers 4122, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Harun Onder, 2009. "Starting Small in Free Trade Agreements," Working Papers 0905, Florida International University, Department of Economics. [Downloadable!]
  9. Carsten Kowalczyk & Raymond Riezman, 2009. "Trade Agreements," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  10. Ben Zissimos, 2006. "The GATT and Gradualism," Working Papers 0619, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
  11. Richard Baldwin, 2007. "Multilateralising Regionalism: Sphagetti Bowls as building Blocs on the Path to Global Free Trade," Working Papers id:1231, esocialsciences.com. [Downloadable!]
    Other versions:
  12. Paolo Epifani & Juliette Vitaloni, 2003. "‘GATT-Think’ with Asymmetric Countries," CESPRI Working Papers 141, CESPRI, Centre for Research on Innovation and Internationalisation, Universita' Bocconi, Milano, Italy, revised Mar 2003. [Downloadable!]
    Other versions:
  13. Libman, Alexander, 2009. "Russian federalism and post-Soviet integration: Divergence of development paths," MPRA Paper 12944, University Library of Munich, Germany. [Downloadable!]
  14. Richard Chisik & Ronald B. Davies, 2000. "Gradualism in Tax Treaties with Irreversible Foreign Direct Investment," University of Oregon Economics Department Working Papers 2000-3, University of Oregon Economics Department, revised 01 Jun 2002. [Downloadable!]
    Other versions:
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