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Bilateral trade agreements and the feasibility of multilateral free trade

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  • Saggi, Kamal
  • Yildiz, Halis Murat

Abstract

This paper compares stable Nash equilibria of two games of trade liberalization. In the FTA game, each country can form an FTA with either one of its trade partners, or both of them, or none of them. By contrast, in the No FTA game, each country must choose either no agreement or free trade. Under symmetry, free trade is uniquely stable under the No FTA game whereas the FTA game also admits a bilateral FTA as an equilibrium. However, there exist patterns of cost asymmetry for which the freedom to pursue bilateral FTAs is necessary for achieving global free trade.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17561.

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Date of creation: 01 Feb 2008
Date of revision: 26 Jun 2009
Handle: RePEc:pra:mprapa:17561

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Related research

Keywords: Multilateral Trade Liberalization; Free Trade Agreements; GATT; Intraindustry Trade; Oilgopoly;

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Citations

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Cited by:
  1. Itai Agur, 2007. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Economics Working Papers ECO2007/17, European University Institute.
  2. Valdivieso, Andres & McSweeney, Peter & Esparon, Nanette M., 2011. "The Australian-Chile free trade agreement and prospects for trade in fresh fruit," Australasian Agribusiness Review, University of Melbourne, Melbourne School of Land and Environment, vol. 19.
  3. Jorzik, Nathalie & Mueller-Langer, Frank, 2013. "Multilateral Stability and Efficiency of Trade Agreements: A Network Formation Approach," Discussion Papers in Economics 14587, University of Munich, Department of Economics.
  4. World Bank, 2005. "Global Economic Prospects 2005 : Trade, Regionalism and Development," World Bank Publications, The World Bank, number 14783, October.
  5. Yildiz, Halis Murat, 2011. "Hub and spoke trade agreements under oligopoly with asymmetric costs," MPRA Paper 34964, University Library of Munich, Germany.
  6. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does regionalism affect trade liberalization towards non-members?," LSE Research Online Documents on Economics 19584, London School of Economics and Political Science, LSE Library.
  7. Medvedev, Denis, 2006. "Preferential trade agreements and their role in world trade," Policy Research Working Paper Series 4038, The World Bank.
  8. Aghion, Philippe & Antras, Pol & Helpman, Elhanan, 2007. "Negotiating free trade," Journal of International Economics, Elsevier, vol. 73(1), pages 1-30, September.
  9. Saggi, Kamal & Yildiz, Halis Murat, 2009. "Bilateralism, multilateralism, and the quest for global free trade," MPRA Paper 17558, University Library of Munich, Germany.
  10. Abdessalem Abbassi & Lota D. Tamini & Ahlem Dakhlaoui, 2013. "Production Cost Asymmetry, Minimum Access and Reciprocal Dumping," Cahiers de recherche CREATE 2013-7, CREATE.
  11. Danilo R. Trupkin, 2010. "On the Viability of a Multilateral Trade Agreement: A Political-Economy Approach," Documentos de Trabajo/Working Papers 1001, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  12. Jin Zhang & Licun Xue & Lei Zu, 2013. "Farsighted free trade networks," International Journal of Game Theory, Springer, vol. 42(2), pages 375-398, May.

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