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Gradualism in Free Trade Agreements: A Theoretical Justification

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Author Info
Richard Chisik () (Department of Economics, Florida International University)

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Abstract

A notable feature of many recent trade agreements is the gradual, rather than immediate, reduction of trade barriers. In this paper we model trade liberalization as a cooperative relationship that evolves gradually in a non-cooperative environment. We show that specialization, capacity irreversibility and the development of trade-partner specific capital increase the benefit of continuing the liberalizing relationship and decrease, over time, the lowest obtainable self-enforcing tariff. By increasing the penalty of future defection, sunk costs ensure that the self-enforcing trading relationship starts slowly, but once in progress the level of cooperation continues to improve.

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File URL: http://www.fiu.edu/orgs/economics/wp2003/01-07.pdf
File Format: application/pdf
File Function: Revised version, 2001
Download Restriction: no

Publisher Info
Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0107.

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Length: 44 pages
Date of creation: Dec 2001
Date of revision:
Handle: RePEc:fiu:wpaper:0107

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Postal: Miami, FL 33199
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Web page: http://www.fiu.edu/orgs/economics/
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Related research
Keywords: Trade Negotiations; Gradualism; Irreversibilities; Economic Integration; Dynamic Games.;

Other versions of this item:

Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F15 - International Economics - - Trade - - - Economic Integration
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

Cited by:
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  1. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Carsten Herrmann-Pillath, 2006. "Reciprocity and the hidden constitution of world trade," Constitutional Political Economy, Springer, vol. 17(3), pages 133-163, September. [Downloadable!] (restricted)
  3. Harun Onder, 2009. "Starting Small in Free Trade Agreements," Working Papers 0905, Florida International University, Department of Economics. [Downloadable!]
  4. Hideo Konishi & Carsten Kowalczyk & Tomas Sjostrom, 2003. "Free Trade, Customs Unions, and Transfers," Boston College Working Papers in Economics 568, Boston College Department of Economics. [Downloadable!]
  5. Ben Zissimos, 2006. "The GATT and Gradualism," Working Papers 0619, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
  6. Richard Baldwin, 2007. "Multilateralising Regionalism: Sphagetti Bowls as building Blocs on the Path to Global Free Trade," Working Papers id:1231, esocialsciences.com. [Downloadable!]
    Other versions:
  7. Carsten Kowalczyk & Raymond Riezman, 2009. "Trade Agreements," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Kyle Bagwell & Robert W. Staiger, 2002. "GATT-think," Discussion Papers 0102-39, Columbia University, Department of Economics. [Downloadable!]
  9. Richard Chisik & Ronald B. Davies, 2000. "Gradualism in Tax Treaties with Irreversible Foreign Direct Investment," University of Oregon Economics Department Working Papers 2000-3, University of Oregon Economics Department, revised 01 Jun 2002. [Downloadable!]
    Other versions:
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