The majority of the trading blocs to date are between similar countries, rather than between developed and developing countries. This paper provides a rationale for why trading blocs among similar countries may arise as an equilibrium phenomenon. It develops a model of an asymmetric world economy in which there are at least four countries. The countries are differentiated with respect to their market size and they choose their trading partners. In the coalition-proof Nash equilibrium, either there is global free trade or free trade areas are formed among similar countries.
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Volume (Year): 39 (2006) Issue (Month): 3 (August) Pages: 809-830 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations F15 - International Economics - - Trade - - - Economic Integration
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