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Networks of free trade agreements among heterogeneous countries

Author

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

Abstract

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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Suggested Citation

  • MAULEON, Ana & SONG, Huasheng & VANNETELBOSCH, Vincent, 2010. "Networks of free trade agreements among heterogeneous countries," LIDAM Reprints CORE 2200, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2200
    DOI: 10.1111/j.1467-9779.2010.01461.x
    Note: In : Journal of Public Economic Theory, 12(3), 471-500, 2010
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    Cited by:

    1. Kenan Huremović, 2021. "A noncooperative model of contest network formation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(2), pages 275-317, April.
    2. Chessa, Michela & Persenda, Arnaud & Torre, Dominique, 2023. "Brexit and Canadadvent: An application of graphs and hypergraphs to recent international trade agreements," International Economics, Elsevier, vol. 175(C), pages 1-12.
    3. Jin Zhang & Licun Xue & Lei Zu, 2013. "Farsighted free trade networks," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(2), pages 375-398, May.
    4. Teteryatnikova, Mariya, 2018. "R&D in trade networks: The role of asymmetry," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 307-350.
    5. Jihwan Do & Jung Hur & Sung-Ha Hwang & Larry D. Qiu, 2023. "Tariff diversity and FTA network," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(2), pages 333-360, May.
    6. Domenico Buccella, 2011. "Labor unions and economic integration: A review," Económica, Instituto de Investigaciones Económicas, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0, pages 25-89, January-D.
    7. Teteryatnikova, Mariya, 2008. "R&D in the network of international trade: Multilateral versus regional trade agreements," WTO Staff Working Papers ERSD-2009-03, World Trade Organization (WTO), Economic Research and Statistics Division.
    8. Teteryatnikova, Mariya, 2018. "R&D in trade networks: The role of asymmetry," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 307-350.
    9. Chenghong Luo & Ana Mauleon & Vincent Vannetelbosch, 2022. "Coalition-proof stable networks," Review of Economic Design, Springer;Society for Economic Design, vol. 26(2), pages 185-209, June.

    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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