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Bilateral trade agreements and the feasibility of multilateral free trade

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  • Saggi, Kamal
  • Yildiz, Halis Murat

Abstract

This paper compares stable Nash equilibria of two games of trade liberalization. In the FTA game, each country can form an FTA with either one of its trade partners, or both of them, or none of them. By contrast, in the No FTA game, each country must choose either no agreement or free trade. Under symmetry, free trade is uniquely stable under the No FTA game whereas the FTA game also admits a bilateral FTA as an equilibrium. However, there exist patterns of cost asymmetry for which the freedom to pursue bilateral FTAs is necessary for achieving global free trade.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:17561
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    References listed on IDEAS

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    More about this item

    Keywords

    Multilateral Trade Liberalization; Free Trade Agreements; GATT; Intraindustry Trade; Oilgopoly;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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