WHY ARE TRADE AGREEMENTS REGIONAL? A Theory Based on Noncooperative Networks
AbstractThis paper argues that free trade agreements (FTAs) are regional because, in their absence, optimal tariffs are higher against (close) regional partners than (distant) countries outside the region. Optimal tariffs shift rents from foreign firms to domestic citizens. Lower transport costs imply higher rents and therefore higher tariffs. So regional FTAs have a higher payoff than non-regional FTAs. Therefore, only regional FTAs may yield positive gains when sponsoring a FTA is costly. To analyze equilibrium, standard theory of non-cooperative networks is extended to allow for asymmetric players. Naive best response dynamics show that ‘trade blocks can be stepping blocks’ for free trade.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 652.
Length: 42 pages
Date of creation: 2002
Date of revision:
Importance Sampling ; Filtering ; Particle filter ; Simulation ; SIR ; State space;
Find related papers by JEL classification:
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- 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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