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Free Trade Networks With Transfers

  • TAIJI FURUSAWA
  • HIDEO KONISHI

The paper investigates the network of bilateral free trade agreements (FTA) in the context of a network formation game with transfers. Furusawa and Konishi (2002) show that without international transfers, countries with different industrialization levels may not sign an FTA, so that the global free trade network, in which every pair of countries sign an FTA, is not pairwise stable in general. We show in this paper that even if the world consists of fairly asymmetric countries, the global free trade network is pairwise stable when transfers between FTA signatories are allowed. Moreover, it is the unique pairwise stable network unless industrial commodities are highly substitutable from one another.

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Article provided by Japanese Economic Association in its journal The Japanese Economic Review.

Volume (Year): 56 (2005)
Issue (Month): 2 ()
Pages: 144-164

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Handle: RePEc:bla:jecrev:v:56:y:2005:i:2:p:144-164
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  1. Sanjeev Goyal & Sumit Joshi, 2006. "Unequal connections," International Journal of Game Theory, Springer, vol. 34(3), pages 319-349, October.
  2. Furusawa, Taiji & Konishi, Hideo, 2004. "A welfare decomposition in quasi-linear economies," Economics Letters, Elsevier, vol. 85(1), pages 29-34, October.
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  4. Bloch, Francis & Jackson, Matthew O., 2007. "The formation of networks with transfers among players," Journal of Economic Theory, Elsevier, vol. 133(1), pages 83-110, March.
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  6. Taiji Furusawa & Hideo Konishi, 2002. "Free Trade Networks," Boston College Working Papers in Economics 548, Boston College Department of Economics, revised 08 Sep 2003.
  7. Fukushima, Takashi & Kim, Namdoo, 1989. "Welfare improving tariff changes : A case of many goods and countries," Journal of International Economics, Elsevier, vol. 26(3-4), pages 383-388, May.
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  9. Sanjeev Goyal & Sumit Joshi, 2006. "Bilateralism And Free Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 749-778, 08.
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  12. Kowalczyk, Carsten, 1989. "Trade Negotiations and World Welfare," American Economic Review, American Economic Association, vol. 79(3), pages 552-59, June.
  13. Yi, Sang-Seung, 2000. "Free-Trade Areas and Welfare: An Equilibrium Analysis," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 336-47, May.
  14. Freund, Caroline, 2000. "Multilateralism and the endogenous formation of preferential trade agreements," Journal of International Economics, Elsevier, vol. 52(2), pages 359-376, December.
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