The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism
AbstractThis paper argues that the growing US trade deficit has caused the decline of the WTO and the rise of regional trade agreements. Growing imbalances make countries more selective about who to cooperate with. This is formally shown in a three-country negotiation game that is based on a goods-market model. Subsequently, the model is parameterized and applied quantitatively. Using historical data, the model correctly predicts the date that US-Canada FTA talks began. Based on current data, moreover, the model paints a bleak picture for multilateralism: US exports to China would have to triple for a new WTO round to stand a chance. But even this may be insufficient: a dynamic extension of the game shows that regionalism can have a lock-in effect. Nonetheless, this does not plead for tougher WTO rules on regionalism. As is argued both qualitatively and quantitatively, these may push countries to less, not more, cooperation.
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Bibliographic InfoArticle provided by De Gruyter in its journal Global Economy Journal.
Volume (Year): 8 (2008)
Issue (Month): 3 (September)
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Web page: http://www.degruyter.com
Other versions of this item:
- 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.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
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