Gradualism in Free Trade Agreements: A Theoretical Justification
AbstractA 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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Bibliographic InfoPaper provided by Ryerson University, Department of Economics in its series Working Papers with number 018.
Length: 44 pages
Date of creation: Aug 2010
Date of revision:
Trade Negotiations; Gradualism; Irreversibilities; Economic Integration; Dynamic Games.;
Other versions of this item:
- Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
- 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
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