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Preferential trading arrangements as strategic positioning

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  • Seidmann, Daniel J.

Abstract

We analyze a three-country model of trade negotiations in which countries can form bilateral free trade areas, bilateral customs unions or a trilateral preferential trading arrangement, and can continue negotiating after reaching an agreement. In contrast to the literature on multilateral bargaining, the set of agreements can form a (nonpartitional) network, while in contrast to the network literature, players can reach multilateral agreements. Patient enough countries only reach bilateral agreements if insiders gain more than outsiders, which allows them to manipulate the status quo in subsequent negotiations. However, a hub and spoke pattern may then emerge, and insiders then dissipate the advantages of strategic positioning. We also use variants on the model to explain why a US commitment not to bargain bilaterally sustained progress at GATT negotiations, and the rarity of open access preferential trading arrangements.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 79 (2009)
Issue (Month): 1 (September)
Pages: 143-159

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Handle: RePEc:eee:inecon:v:79:y:2009:i:1:p:143-159

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Preferential trading arrangements Bargaining Coalitions Networks;

References

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Citations

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Cited by:
  1. 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.
  2. David Vines & Monika Mrazova, 2008. "Is the WTO's Article XXIV Bad?," Economics Series Working Papers 417, University of Oxford, Department of Economics.
  3. James Lake & Halis M. Yildiz, 2014. "On the different geographic characteristics of Free Trade Agreements and Customs Unions," Departmental Working Papers 1403, Southern Methodist University, Department of Economics.
  4. Debraj Ray & Rajiv Vohra, 2013. "Coalition Formation," Working Papers 2013-1, Brown University, Department of Economics.
  5. Kamal Saggi & Alan Woodland & Halis Murat Yildiz, 2011. "On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions," Vanderbilt University Department of Economics Working Papers 1116, Vanderbilt University Department of Economics.
  6. Ben Zissimos, 2011. "Why are Trade Agreements Regional?," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 32-45, 02.
  7. Eric Bond, 2009. "Paths of efficient self-enforcing trade agreements," Economic Theory, Springer, vol. 41(1), pages 85-104, October.
  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. Mrázová, Monika & Vines, David & Zissimos, Ben, 2013. "Is the GATT/WTO's Article XXIV bad?," Journal of International Economics, Elsevier, vol. 89(1), pages 216-232.
  10. Noritsugu Nakanishi, 2011. "Farsightedly Stable FTA Structures," Discussion Papers 1114, Graduate School of Economics, Kobe University.

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