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Bilateralism, multilateralism, and the quest for global free trade

Listed author(s):
  • Saggi, Kamal
  • Yildiz, Halis Murat

We develop an equilibrium theory of trade agreements in which both the degree and the nature (bilateral or multilateral) of trade liberalization are endogenously determined. To determine whether and how bilateralism matters, we also analyze a scenario where countries pursue trade liberalization on only a multilateral basis. We find that when countries have asymmetric endowments or when governments value producer interests more than tariff revenue and consumer surplus, there exist circumstances where global free trade is a stable equilibrium only if countries are free to pursue bilateral trade agreements. By contrast, under symmetry, both bilateralism and multilateralism yield global free trade.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022-1996(10)00005-X
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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 81 (2010)
Issue (Month): 1 (May)
Pages: 26-37

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Handle: RePEc:eee:inecon:v:81:y:2010:i:1:p:26-37
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  2. Ludema, Rodney D., 2002. "Increasing returns, multinationals and geography of preferential trade agreements," Journal of International Economics, Elsevier, vol. 56(2), pages 329-358, March.
  3. Saggi, Kamal & Yildiz, Halis Murat, 2008. "Bilateral trade agreements and the feasibility of multilateral free trade," MPRA Paper 17561, University Library of Munich, Germany, revised 26 Jun 2009.
  4. Paul R. Krugman, 1991. "The move toward free trade zones," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 5-25.
  5. Kamal Saggi, 2006. "Preferential Trade Agreements And Multilateral Tariff Cooperation ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 29-57, 02.
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  17. Ornelas, Emanuel, 2005. "Endogenous free trade agreements and the multilateral trading system," Journal of International Economics, Elsevier, vol. 67(2), pages 471-497, December.
  18. Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July.
  19. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-519, September.
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  22. Kamal Saggi, 2009. "Optimal tariffs of preferential trade agreements and the tariff complementarity effect," Indian Growth and Development Review, Emerald Group Publishing, vol. 2(1), pages 5-17, April.
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