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Why are Trade Agreements Regional?

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  • Ben Zissimos

    ()
    (Department of Economics, 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 occurs, giving rise to multiple equilibria; any one of many possible trade agreements can form. With distance between countries, regional trade agreements generate larger rent-shifting effects than non-regional agreements. Countries use these effects to coordinate on a unique equilibrium.

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File URL: http://www.accessecon.com/pubs/VUECON/vu10-w02.pdf
File Function: Revised version, March 2010
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 1002.

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Date of creation: Mar 2010
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Handle: RePEc:van:wpaper:1002

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Related research

Keywords: Coalition; coordination; regionalism; preferential trade agreement; trade liberalization;

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Citations

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Cited by:
  1. Ornelas, Emanuel, 2012. "Preferential Trade Agreements and the Labor Market," CEPR Discussion Papers 8805, C.E.P.R. Discussion Papers.
  2. Christian Soegaard, . "The Self-enforceability of Trade Agreements in the Presence of Trade Costs," Discussion Papers 11/26, University of Nottingham, GEP.
  3. Soegaard, Christian, 2013. "An Oligopolistic Theory of Regional Trade Agreements," The Warwick Economics Research Paper Series (TWERPS) 1007, University of Warwick, Department of Economics.
  4. 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.
  5. 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.
  6. repec:cge:warwcg:12 is not listed on IDEAS

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