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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- R. Dornbusch, 1984.
"External Debt, Budget Deficits and Disequilibrium Exchange Rates,"
347, Massachusetts Institute of Technology (MIT), Department of Economics.
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- 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.
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- Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- Ronald W. Jones & Douglas D. Purvis, 1981. "International Differences in Response to Common External Shocks: The Role of Purchasing Power Parity," Working Papers 419, Queen's University, Department of Economics.
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