Preferential Trading Arrangements as Strategic Positioning
AbstractWe analyze a three-country model of trade negotiations in which countries can form bilateral free trade areas, 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. We show that patient enough countries reach bilateral arrangements if and only if insiders gain more than outsiders; and we characterize conditions under which a hub and spoke pattern emerges. 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 InfoPaper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2006-09.
Date of creation: Apr 2006
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