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Why are Trade Agreements Regional?

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  • Ben Zissimos

    (Vanderbilt University)

Abstract

This paper shows how distance may be used to coordinate on a unique equilibrium in which trade agreements are regional. Trade agreement formation is modeled as coalition formation. In a standard trade model with no distance between countries, a familiar problem of coordination failure arises giving rise to multiple equilibria; any one of many possible trade agreements can form. With distance between countries, and through strategic interaction in tariff setting, regional trade agreements generate larger rent-shifting effects than non regional agreements, which countries use to coordinate on a unique equilibrium. Under naive best responses, regional agreements give way to free trade.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.67.

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Date of creation: Jun 2007
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Handle: RePEc:fem:femwpa:2007.67

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Keywords: Coalition; Coordination; Regionalism; Preferential Trade Agreement; Trade Liberalization;

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References

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Citations

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Cited by:
  1. Ornelas, Emanuel, 2012. "Preferential trade agreements and the labour market," ILO Working Papers 469183, International Labour Organization.
  2. Scott L. Baier & Jeffrey H. Bergstrand & Peter Egger & Patrick A. McLaughlin, 2008. "Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism," The World Economy, Wiley Blackwell, vol. 31(4), pages 461-497, 04.
  3. Baier, Scott L; Bergstrand, Jeffery H; Mariutto, Roland., 2010. "The Growth of Bilateralism," CAGE Online Working Paper Series 12, Competitive Advantage in the Global Economy (CAGE).
  4. Christian Soegaard, . "The Self-enforceability of Trade Agreements in the Presence of Trade Costs," Discussion Papers 11/26, University of Nottingham, GEP.

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