Free Trade Agreements as dynamic farsighted networks
In the presence of multilateral negotiations, are Free Trade Agreements (FTAs) necessary for, or will they prevent, free trade? This question is explored using a novel dynamic network theoretic model where countries are farsighted and asymmetric in terms of market size. I develop a new equilibrium concept that endogenizes the order of negotiations. FTAs are necessary for free trade when there are two small countries and one large country but FTAs prevent free trade when there are two large countries and one small country. The model provides insights into the dynamics of recent trade negotiations involving the US.
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