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Bilateral Trade Agreements and the Feasibility of Multilateral Free Trade

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  • Kamal Saggi
  • Halis Murat Yildiz

Abstract

We studied how the pursuit of bilateral free-trade agreements (FTAs) affects the likelihood of achieving multilateral free trade. We derive and compare the stable Nash equilibria of two games of trade liberalization: in the FTA game, each country can either form an FTA with one of its trading partners or both of them or none of them, whereas in the (restricted) No FTA game, purely bilateral FTAs are not permitted. The major result is that there exist circumstances under which the freedom to pursue (discriminatory) bilateral FTAs is necessary for achieving multilateral free trade.
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  • Kamal Saggi & Halis Murat Yildiz, 2011. "Bilateral Trade Agreements and the Feasibility of Multilateral Free Trade," Review of International Economics, Wiley Blackwell, vol. 19(2), pages 356-373, May.
    • Handle: RePEc:bla:reviec:v:19:y:2011:i:2:p:356-373
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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