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Spaghetti regionalism

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  • Caroline L. Freund

Abstract

This paper examines the welfare implications of multiple free trade agreements in a model of imperfect competition. We show that free trade is the unique Nash equilibrium under the simple rule that any two countries can form a bilateral free trade agreement. Specifically, a country is always better off forming a bilateral trade agreement with every other country, irrespective of previous agreements. This suggests that each new preferential free trade agreement may be a step towards multilateral free trade.

Suggested Citation

  • Caroline L. Freund, 2000. "Spaghetti regionalism," International Finance Discussion Papers 680, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:680
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    References listed on IDEAS

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    7. John Kennan & Raymond Riezman, 2013. "Optimal Tariff Equilibria with Customs Unions," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 5, pages 53-66, World Scientific Publishing Co. Pte. Ltd..
    8. Robert C. Feenstra & Gene M. Grossman & Douglas A. Irwin (ed.), 1996. "The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061864, December.
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    10. 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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    12. Baldwin, Richard, 1993. "A Domino Theory of Regionalism," CEPR Discussion Papers 857, C.E.P.R. Discussion Papers.
    13. Sang-Seung, Yi, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good," Journal of International Economics, Elsevier, vol. 41(1-2), pages 153-177, August.
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    Cited by:

    1. Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July.
    2. Ibarra-Yunez, Alejandro, 2003. "Spaghetti regionalism or strategic foreign trade: some evidence for Mexico," Journal of Development Economics, Elsevier, vol. 72(2), pages 567-584, December.
    3. Christopher Findlay, 2001. "Old Issues in New Regionalism," Asia Pacific Economic Papers 311, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.

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    Keywords

    Free trade; International trade;

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