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An Oligopolistic Theory of Regional Trade Agreements

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  • Christian Soegaard

Abstract

Why are trade agreements regional? I address this question in a model of oligopoly featuring product variety. Tariffs have the effect of manipulating a country's terms of trade and shifting profits towards the domestic market at the expense of foreign trade partners. Countries endogenously form into regional trade agreements or global free trade in a framework where any agreement must be sustained by repeated interaction. A crucial parameter determining the degree of regionalism is product variety. I demonstrate that for a given trade cost and discount factor, increases in product variety leads to greater scope for global free trade relative to regional trade agreements.

Suggested Citation

  • Christian Soegaard, 2014. "An Oligopolistic Theory of Regional Trade Agreements," ERSA conference papers ersa14p598, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa14p598
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    Cited by:

    1. Lake, James & Yildiz, Halis M., 2016. "On the different geographic characteristics of Free Trade Agreements and Customs Unions," Journal of International Economics, Elsevier, vol. 103(C), pages 213-233.
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    3. Jing Lu & Xiuyang Pan & Zuoling Xie, 2020. "Unity versus Collaboration: Construction of China's Belt and Road Free Trade Agreement 2.0 Network," Pacific Economic Review, Wiley Blackwell, vol. 25(2), pages 250-271, May.

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    More about this item

    Keywords

    trade policy ; self-enforceability ; trade costs ; regional trade agreements.;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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