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Why are Trade Agreements Regional?

  • Ben Zissimos

    ()

    (Department of Economics, Vanderbilt University)

This paper shows how distance may be used to coordinate on a unique equilibrium in which trade agreements are regional. Trade agreement formation is modeled as coalition formation. In a standard trade model with no distance between countries a familiar problem of coordination failure occurs, giving rise to multiple equilibria; any one of many possible trade agreements can form. With distance between countries, regional trade agreements generate larger rent-shifting effects than non-regional agreements. Countries use these effects to coordinate on a unique equilibrium.

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File URL: http://www.accessecon.com/pubs/VUECON/vu10-w02.pdf
File Function: Revised version, March 2010
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 1002.

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Date of creation: Mar 2010
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Handle: RePEc:van:wpaper:1002
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. Ben Zissimos, 2010. "Why are Trade Agreements Regional?," Vanderbilt University Department of Economics Working Papers 1002, Vanderbilt University Department of Economics.
  2. Kyle Bagwell & Robert Staiger, 1994. "Multilateral Tariff Cooperation During the Formation of Regional Free Trade Areas," International Trade 9410001, EconWPA.
  3. Ethier, Wilfred J, 1998. "The New Regionalism," Economic Journal, Royal Economic Society, vol. 108(449), pages 1149-61, July.
  4. Raymond Riezman, 1999. "Can Bilateral Trade Agreements Help Induce Free Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 32(3), pages 751-766, May.
  5. Grossman, G.M. & Helpman, E., 1993. "Trade Wars and Trade Talks," Papers 1-93, Tel Aviv.
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  8. Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, vol. 42(1-2), pages 91-123, February.
  9. Bond, Eric W. & Riezman, Raymond G. & Syropoulos, Constantinos, 2004. "A strategic and welfare theoretic analysis of free trade areas," Journal of International Economics, Elsevier, vol. 64(1), pages 1-27, October.
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  11. Baldwin, Richard, 1993. "A Domino Theory of Regionalism," CEPR Discussion Papers 857, C.E.P.R. Discussion Papers.
  12. Paul Krugman, 1991. "The move toward free trade zones," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-58.
  13. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
  14. 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.
  15. Pravin Krishna, 2003. "Are Regional Trading Partners "Natural"?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 202-231, February.
  16. Bond, E.W. & Syropoulos, C., 1993. "Trading Blocs and the Sustainability of Inte-regional Cooperation," Papers 5-93-3, Pennsylvania State - Department of Economics.
  17. Saggi, Kamal & Yildiz, Halis Murat, 2009. "Bilateralism, multilateralism, and the quest for global free trade," MPRA Paper 17558, University Library of Munich, Germany.
  18. Raymond RIEZMAN, 2013. "Customs Unions and the Core," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 3, pages 33-43 World Scientific Publishing Co. Pte. Ltd..
  19. Lawrence H. Summers, 1991. "Regionalism and the world trading system," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 295-301.
  20. Bond, Eric W & Syropoulos, Costas & Winters, L. Alan, 1996. "Deepening of Regional Integration and Multilateral Trade Agreements," CEPR Discussion Papers 1317, C.E.P.R. Discussion Papers.
  21. Pravin Krishna, 1998. "Regionalism And Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 227-250, February.
  22. Bhagwati, Jagdish & Greenaway, David & Panagariya, Arvind, 1998. "Trading Preferentially: Theory and Policy," Economic Journal, Royal Economic Society, vol. 108(449), pages 1128-48, July.
  23. Seidmann, Daniel J., 2009. "Preferential trading arrangements as strategic positioning," Journal of International Economics, Elsevier, vol. 79(1), pages 143-159, September.
  24. Tone Arnold & Myrna Wooders, 2005. "Dynamic Club Formation with Coordination," Vanderbilt University Department of Economics Working Papers 0522, Vanderbilt University Department of Economics.
  25. Monika Mrazova & David Vines & Ben Zissimos, 2009. "Is the WTO's Article XXIV Bad?," Vanderbilt University Department of Economics Working Papers 0902, Vanderbilt University Department of Economics.
  26. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December.
  27. Ornelas, Emanuel, 2005. "Endogenous free trade agreements and the multilateral trading system," Journal of International Economics, Elsevier, vol. 67(2), pages 471-497, December.
  28. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204, June.
  29. Bloch, Francis, 1996. "Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division," Games and Economic Behavior, Elsevier, vol. 14(1), pages 90-123, May.
  30. Kamal Saggi, 2006. "Preferential Trade Agreements And Multilateral Tariff Cooperation ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 29-57, 02.
  31. Bagwell, Kyle & Staiger, Robert W, 1998. "Will Preferential Agreements Undermine the Multilateral Trading System?," Economic Journal, Royal Economic Society, vol. 108(449), pages 1162-82, July.
  32. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-64, July.
  33. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
  34. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
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