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Bilateral Trade Agreements and the Feasibility of Multilateral Free Trade

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  • Kamal Saggi
  • Halis Murat Yildiz

Abstract

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.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 19 (2011)
Issue (Month): 2 (05)
Pages: 356-373

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Handle: RePEc:bla:reviec:v:19:y:2011:i:2:p:356-373

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Citations

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Cited by:
  1. Yildiz, Halis Murat, 2012. "Hub and Spoke Trade Agreements under Oligopoly with Asymmetric Costs," MPRA Paper 36501, University Library of Munich, Germany, revised 07 Feb 2012.
  2. Denis Medvedev, 2010. "Preferential trade agreements and their role in world trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(2), pages 199-222, June.
  3. Jorzik, Nathalie & Mueller-Langer, Frank, 2013. "Multilateral Stability and Efficiency of Trade Agreements: A Network Formation Approach," Discussion Papers in Economics 14587, University of Munich, Department of Economics.
  4. Itai Agur, 2007. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Economics Working Papers ECO2007/17, European University Institute.
  5. Valdivieso, Andres & McSweeney, Peter & Esparon, Nanette M., 2011. "The Australian-Chile free trade agreement and prospects for trade in fresh fruit," Australasian Agribusiness Review, University of Melbourne, Melbourne School of Land and Environment, vol. 19.
  6. World Bank, 2005. "Global Economic Prospects 2005 : Trade, Regionalism and Development," World Bank Publications, The World Bank, number 14783, October.
  7. Philippe Aghion & Pol Antràs & Elhanan Helpman, 2004. "Negotiating Free Trade," NBER Working Papers 10721, National Bureau of Economic Research, Inc.
  8. Jin Zhang & Licun Xue & Lei Zu, 2013. "Farsighted free trade networks," International Journal of Game Theory, Springer, vol. 42(2), pages 375-398, May.
  9. Estevadeordal, Antoni & Freund, Caroline & Ornelas, Emanuel, 2008. "Does regionalism affect trade liberalization toward non-members ?," Policy Research Working Paper Series 4751, The World Bank.
  10. Saggi, Kamal & Yildiz, Halis Murat, 2010. "Bilateralism, multilateralism, and the quest for global free trade," Journal of International Economics, Elsevier, vol. 81(1), pages 26-37, May.
  11. Abdessalem Abbassi & Lota D. Tamini & Ahlem Dakhlaoui, 2013. "Production Cost Asymmetry, Minimum Access and Reciprocal Dumping," Cahiers de recherche CREATE 2013-7, CREATE.
  12. Danilo R. Trupkin, 2010. "On the Viability of a Multilateral Trade Agreement: A Political-Economy Approach," Documentos de Trabajo/Working Papers 1001, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..

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