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China's potential future growth and gains from trade policy bargaining: Some numerical simulation results

  • Li, Chunding
  • Whalley, John

Numerical simulation analysis of bargaining solutions is little developed in existing literature. In this paper, we use a numerical general equilibrium model which captures China and her major trading partners and examine the outcomes of trade policy bargaining solutions (bargaining over tariffs and financial transfers) over time, and then measure both absolute and relative gains to China from trade bargaining. These measurements are important for policy making. Our simulation results indicate that China's welfare gain from trade bargaining will increase over time if countries keep their present higher GDP growth rates for several decades, but there are major difference when using different bargaining solution concepts. These differences have not been noted in existing literature but have an intuitive explanation. Our results also indicate that if China jointly bargains along with India, Brazil and other developing countries with the OECD, and when we use PPP to adjust China's relative GDP size China's gain will further increase.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 37 (2014)
Issue (Month): C ()
Pages: 65-78

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Handle: RePEc:eee:ecmode:v:37:y:2014:i:c:p:65-78
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  1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  2. Abrego, Lisandro, et al, 2001. "Trade and Environment: Bargaining Outcomes from Linked Negotiations," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 414-28, August.
  3. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550.
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  9. Thomson, William, 1994. "Cooperative models of bargaining," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 35, pages 1237-1284 Elsevier.
  10. Johnson, Eric J. & Camerer, Colin & Sen, Sankar & Rymon, Talia, 2002. "Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining," Journal of Economic Theory, Elsevier, vol. 104(1), pages 16-47, May.
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  12. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
  13. Raphael Trifon & Moshe Landau, 1974. "A Model of Wage Bargaining Involving Negotiations and Sanctions," Management Science, INFORMS, vol. 20(6), pages 960-970, February.
  14. Alvin E. Roth & V. Prasnikar & M. Okuno-Fujiwara & S. Zamir, 1998. "Bargaining and market behavior in Jerusalem, Liubljana, Pittsburgh and Tokyo: an experimental study," Levine's Working Paper Archive 344, David K. Levine.
  15. Harry G. Johnson, 1965. "An Economic Theory of Protectionism, Tariff Bargaining, and the Formation of Customs Unions," Journal of Political Economy, University of Chicago Press, vol. 73, pages 256.
  16. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-18, May.
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