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Networks of free trade agreements among heterogeneous countries

  • MAULEON, Ana
  • SONG, Huasheng
  • VANNETELBOSCH, Vincent

The paper examines the formation of free trade agreements as a network formation game. We consider a three-country model in which international trade occurs between economies with imperfectly competitive product markets. Labor markets can be unionized and non-unionized in each country. We show that if all countries are of the same type (all of them are either unionized or non-unionized), the global free trade network is both the unique pairwise stable network and the unique efficient network. If some countries are unionized while others are non-unionized, other networks apart from the global free trade network are likely to be pairwise stable. However, the efficient network is always the global free trade network. Thus, a conflict between stability and efficiency may occur. Moreover, starting from the network in which no country has signed a free trade agreement, all sequences of networks due to continuously profitable deviations do not lead (in most cases) to the global free trade network, even when global free trade is stable.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006053.

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Date of creation: 00 Jun 2006
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Handle: RePEc:cor:louvco:2006053
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  1. Paul Belleflamme & Francis Bloch, 2001. "Market Sharing Agreements and Collusive Networks," Working Papers 443, Queen Mary University of London, School of Economics and Finance.
  2. Goyal, S. & Joshi, S., 1999. "Bilateralism and free trade," Econometric Institute Research Papers EI 9953-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  3. ANDERSON, Simon P. & DONSIMONI, Marie-Paule & GABSZEWICZ, Jean J., . "Is international trade profitable to oligopolistic industries?," CORE Discussion Papers RP -865, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Taiji Furusawa & Hideo Konishi, 2003. "Free Trade Networks," Working Papers 2003.55, Fondazione Eni Enrico Mattei.
  5. CORDELLA, Tito, . "Trade liberalization and oligopolistic industries: a welfare appraisal," CORE Discussion Papers RP -1049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Jean-Jacques HERINGS & Ana MAULEON & Vincent J. VANNETELBOSCH, 2001. "Rationalizability for Social Environments," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  7. MAULEON, Ana & VANNETELBOSCH, Vincent, . "Strategic union delegation and strike activity," CORE Discussion Papers RP -1766, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Ornelas, Emanuel, 2005. "Endogenous free trade agreements and the multilateral trading system," Journal of International Economics, Elsevier, vol. 67(2), pages 471-497, December.
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  11. John Kennan & Raymond Riezman, 2013. "Optimal Tariff Equilibria with Customs Unions," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 5, pages 53-66 World Scientific Publishing Co. Pte. Ltd..
  12. Chang, Won & Winters, L. Alan, 1999. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," CEPR Discussion Papers 2179, C.E.P.R. Discussion Papers.
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  14. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  15. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.
  16. Naylor, Robin, 1998. "International trade and economic integration when labour markets are generally unionised," European Economic Review, Elsevier, vol. 42(7), pages 1251-1267, July.
  17. de Melo, Jaime & Montenegro, Claudio & Panagariya, Arvind, 1992. "Regional integration, old and new," Policy Research Working Paper Series 985, The World Bank.
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  19. Huizinga, H.P., 1993. "International market integration and union wage bargaining," Other publications TiSEM 567712dd-8f03-40d8-8428-c, Tilburg University, School of Economics and Management.
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  22. Pravin Krishna, . "Regionalism and Multilaterialism: A Political Economy Approach," Working Papers 96-5, Brown University, Department of Economics.
  23. Stephen R. G. Jones, 1989. "The Role of Negotiators in Union-Firm Bargaining," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 630-42, August.
  24. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December.
  25. Fritz GRAFE & Ana MAULEON, 2000. "Externalities and Free Trade Agreements," Annales d'Economie et de Statistique, ENSAE, issue 59, pages 63-88.
  26. Ornelas, Emanuel, 2005. "Trade creating free trade areas and the undermining of multilateralism," European Economic Review, Elsevier, vol. 49(7), pages 1717-1735, October.
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