The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism
AbstractThis paper argues that the growing US trade de.cit has caused the decline of the WTO and the rise of regional trade agreements. A country in de.cit prefers to retain market power against countries with a large surplus. Multilateral cooperation restricts its choice. This notion is formalized in a three-country game in which countries negotiate multilaterally and, if that fails, bilaterally. The multilateral agreement only holds for sufficiently even trade balances. When one country's deficit grows too large, a regionalist equilibrium emerges. A VAR analysis shows that the US trade balance explains over 50% of the variation in regional trade agreements.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2007/17.
Date of creation: 2007
Date of revision:
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Regionalism; RTA; Multilateralism; WTO; Trade balance; US trade deficit;
Other versions of this item:
- Agur Itai, 2008. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Global Economy Journal, De Gruyter, vol. 8(3), pages 1-34, September.
- 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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