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Bilateral trade agreements and the feasibility of multilateral free trade

  • Saggi, Kamal
  • Yildiz, Halis Murat

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17561.

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Date of creation: 01 Feb 2008
Date of revision: 26 Jun 2009
Handle: RePEc:pra:mprapa:17561
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  1. Maggi, G & Rodriguez-Clare, A, 1996. "The Value of Trade Agreements in the Presence of Political Pressures," Papers 180, Princeton, Woodrow Wilson School - Public and International Affairs.
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