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

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References

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  1. Emanuel Ornelas, 2005. "Rent Destruction and the Political Viability of Free Trade Agreements," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(4), pages 1475-1506, November.
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Citations

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Cited by:
  1. Estevadeordal, Antoni & Freund, Caroline & Ornelas, Emanuel, 2008. "Does regionalism affect trade liberalization toward non-members ?," Policy Research Working Paper Series, The World Bank 4751, The World Bank.
  2. World Bank, 2005. "Global Economic Prospects 2005 : Trade, Regionalism and Development," World Bank Publications, The World Bank, number 14783, August.
  3. Itai Agur, 2007. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Economics Working Papers, European University Institute ECO2007/17, European University Institute.
  4. Saggi, Kamal & Yildiz, Halis Murat, 2009. "Bilateralism, multilateralism, and the quest for global free trade," MPRA Paper 17558, University Library of Munich, Germany.
  5. Helpman, Elhanan & Antras, Pol & Aghion, Philippe, 2007. "Negotiating Free Trade," Scholarly Articles 3351239, Harvard University Department of Economics.
  6. Medvedev, Denis, 2006. "Preferential trade agreements and their role in world trade," Policy Research Working Paper Series, The World Bank 4038, The World Bank.
  7. Yildiz, Halis Murat, 2011. "Hub and spoke trade agreements under oligopoly with asymmetric costs," MPRA Paper 34964, University Library of Munich, Germany.
  8. Abdessalem Abbassi & Lota D. Tamini & Ahlem Dakhlaoui, 2013. "Production Cost Asymmetry, Minimum Access and Reciprocal Dumping," Cahiers de recherche CREATE, CREATE 2013-7, CREATE.
  9. Danilo R. Trupkin, 2010. "On the Viability of a Multilateral Trade Agreement: A Political-Economy Approach," Documentos de Trabajo/Working Papers, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo. 1001, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  10. 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, University of Melbourne, Melbourne School of Land and Environment, vol. 19.
  11. Jin Zhang & Licun Xue & Lei Zu, 2013. "Farsighted free trade networks," International Journal of Game Theory, Springer, Springer, vol. 42(2), pages 375-398, May.
  12. Jorzik, Nathalie & Mueller-Langer, Frank, 2013. "Multilateral Stability and Efficiency of Trade Agreements: A Network Formation Approach," Discussion Papers in Economics, University of Munich, Department of Economics 14587, University of Munich, Department of Economics.

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