World Integration, Competitive and Bargaining-Regime Switch: An Exploration
The author considers two trading blocs that can engage in a free trade or a bargaining-dictated trade. Output is produced by several technologies that offer different substitutability between domestic and foreign inputs. Capital is allocated between the various technologies prior to the resolution of uncertainty. The switch to the bargaining equilibrium is shown to diversify country-specific supply shocks. If the bargaining costs are small, trade dependency and bargaining are exploited to allow for the diversification of national shocks. If the bargaining costs are large, countries will invest in trade-independent technologies and the incidence of bargaining will be minimized.
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Volume (Year): 27 (1994)
Issue (Month): 2 (May)
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References listed on IDEAS
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- R. Dornbusch, 1984.
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- Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
- Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-594, June.
- Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June. Full references (including those not matched with items on IDEAS)
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