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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. Emanuel Ornelas, 2012. "Preferential Trade Agreements and the Labor Market," CEP Discussion Papers dp1117, Centre for Economic Performance, LSE.
  2. 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).
  3. 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.
  4. repec:cge:warwcg:12 is not listed on IDEAS
  5. Soegaard, Christian, 2013. "An Oligopolistic Theory of Regional Trade Agreements," The Warwick Economics Research Paper Series (TWERPS) 1007, University of Warwick, Department of Economics.
  6. 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.
  7. 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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