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Endogenous formation of free trade agreements in vertically related markets

Listed author(s):
  • Kawabata, Yasushi

We study the endogenous formation of free trade agreements (FTAs) in a symmetric three-country model with vertically related markets characterized by Cournot competition. We analyze the coalition-proof Nash equilibria in an FTA formation game in which each country forms an FTA with one, both, or none of its trading partners. We show that multilateral free trade is the unique stable equilibrium of the FTA formation game. In other words, FTAs act as building blocks for multilateral trade liberalization in the presence of vertical trade structures.

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File URL: http://www.sciencedirect.com/science/article/pii/S1090944315000198
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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 69 (2015)
Issue (Month): 2 ()
Pages: 214-223

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Handle: RePEc:eee:reecon:v:69:y:2015:i:2:p:214-223
DOI: 10.1016/j.rie.2015.03.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622941

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  14. Baldwin, Richard & Venables, Anthony J., 2015. "Trade policy and industrialisation when backward and forward linkages matter," Research in Economics, Elsevier, vol. 69(2), pages 123-131.
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  16. Sanjeev Goyal & Sumit Joshi, 2006. "Bilateralism And Free Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 749-778, August.
  17. Yi, Sang-Seung, 2000. "Free-Trade Areas and Welfare: An Equilibrium Analysis," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 336-347, May.
  18. Saggi, Kamal & Yildiz, Halis Murat, 2010. "Bilateralism, multilateralism, and the quest for global free trade," Journal of International Economics, Elsevier, vol. 81(1), pages 26-37, May.
  19. Hiroshi Mukunoki & Kentaro Tachi, 2006. "Multilateralism and Hub-and-Spoke Bilateralism," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 658-674, September.
  20. Akihiko Yanase & Hiroshi Kurata & Yasushi Kawabata, 2012. "Free Trade Agreement and Vertical Trade with a Manufacturing Base," Review of International Economics, Wiley Blackwell, vol. 20(5), pages 1070-1081, November.
  21. 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, February.
  22. Bernhofen, Daniel M, 1997. "Strategic Trade Policy in a Vertically Related Industry," Review of International Economics, Wiley Blackwell, vol. 5(3), pages 429-433, August.
  23. Kawabata, Yasushi & Yanase, Akihiko & Kurata, Hiroshi, 2010. "Vertical trade and free trade agreements," Journal of the Japanese and International Economies, Elsevier, vol. 24(4), pages 569-585, December.
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