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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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  21. Eric W. Bond & Raymond G. Riezman & Constantinos Syropoulos, 2013. "A strategic and welfare theoretic analysis of free trade areas," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 8, pages 101-127 World Scientific Publishing Co. Pte. Ltd..
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  27. 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.
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  29. Saggi, Kamal & Yildiz, Halis Murat, 2009. "Bilateralism, multilateralism, and the quest for global free trade," MPRA Paper 17558, University Library of Munich, Germany.
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  32. Aghion, Philippe & Antras, Pol & Helpman, Elhanan, 2007. "Negotiating free trade," Journal of International Economics, Elsevier, vol. 73(1), pages 1-30, September.
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