IDEAS home Printed from https://ideas.repec.org/p/wrk/warwec/652.html
   My bibliography  Save this paper

WHY ARE TRADE AGREEMENTS REGIONAL? A Theory Based on Noncooperative Networks

Author

Listed:
  • Zissimos, Ben

    (University of Birmingham)

Abstract

This paper argues that free trade agreements (FTAs) are regional because, in their absence, optimal tariffs are higher against (close) regional partners than (distant) countries outside the region. Optimal tariffs shift rents from foreign firms to domestic citizens. Lower transport costs imply higher rents and therefore higher tariffs. So regional FTAs have a higher payoff than non-regional FTAs. Therefore, only regional FTAs may yield positive gains when sponsoring a FTA is costly. To analyze equilibrium, standard theory of non-cooperative networks is extended to allow for asymmetric players. Naive best response dynamics show that ‘trade blocks can be stepping blocks’ for free trade.

Suggested Citation

  • Zissimos, Ben, 2002. "WHY ARE TRADE AGREEMENTS REGIONAL? A Theory Based on Noncooperative Networks," The Warwick Economics Research Paper Series (TWERPS) 652, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:652
    as

    Download full text from publisher

    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp652.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Elhanan Helpman & Assaf Razin (ed.), 1991. "International Trade and Trade Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262081997.
    2. Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July.
    3. Marco Slikker & Anne van den Nouweland, 2000. "Communication situations with asymmetric players," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 52(1), pages 39-56, September.
    4. Jagdish Bhagwati, 1992. "Regionalism versus Multilateralism," The World Economy, Wiley Blackwell, vol. 15(5), pages 535-556, September.
    5. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Paper 517, Economics Department, Queen's University.
    6. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
    7. Roger B. Myerson, 1977. "Graphs and Cooperation in Games," Mathematics of Operations Research, INFORMS, vol. 2(3), pages 225-229, August.
    8. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
    9. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc.
    10. repec:spr:compst:v:52:y:2000:i:1:p:39-56 is not listed on IDEAS
    11. Bhagwati, Jagdish & Greenaway, David & Panagariya, Arvind, 1998. "Trading Preferentially: Theory and Policy," Economic Journal, Royal Economic Society, vol. 108(449), pages 1128-1148, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ana Mauleon & Huasheng Song & Vincent Vannetelbosch, 2010. "Networks of Free Trade Agreements among Heterogeneous Countries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 471-500, June.
    2. PAPACCIO, Anna, 2013. "Bilateralism and Multilateralism: a Network Approach," CELPE Discussion Papers 125, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    3. Conconi, P., 2000. "Trade Bloc Formation Under Imperfect Competition," The Warwick Economics Research Paper Series (TWERPS) 571, University of Warwick, Department of Economics.
    4. Bond, Eric W. & Syropoulos, Constantinos & Winters, L. Alan, 2001. "Deepening of regional integration and multilateral trade agreements," Journal of International Economics, Elsevier, vol. 53(2), pages 335-361, April.
    5. Rodney D. Ludema, 1998. "On the Value of Preferential Trade Agreements in Multilateral Negotiations," International Trade 9802003, University Library of Munich, Germany.
    6. Arvind Panagariya, 1999. "The Regionalism Debate: An Overview," The World Economy, Wiley Blackwell, vol. 22(4), pages 455-476, June.
    7. Pramod C. Mane & Kapil Ahuja & Nagarajan Krishnamurthy, 2020. "Stability, efficiency, and contentedness of social storage networks," Annals of Operations Research, Springer, vol. 287(2), pages 811-842, April.
    8. Jun, Tackseung & Kim, Jeong-Yoo, 2009. "Hypergraph Formation Game," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 50(2), pages 1-16, December.
    9. Bond,Eric W., 1997. "Transportation infrastructure investments and regional trade liberalization," Policy Research Working Paper Series 1851, The World Bank.
    10. Constantinos Syropoulos, 2002. "On Tariff Preferences And Delegation Decisions In Customs Unions: A Heckscher--Ohlin Approach," Economic Journal, Royal Economic Society, vol. 112(481), pages 625-648, July.
    11. Rupa Duttagupta & Arvind Panagariya, 2007. "Free Trade Areas And Rules Of Origin: Economics And Politics," Economics and Politics, Wiley Blackwell, vol. 19(2), pages 169-190, July.
    12. Castro, Rui & Koumtingué, Nelnan, 2014. "On the individual optimality of economic integration," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 115-135.
    13. Jean-François Caulier & Ana Mauleon & Vincent Vannetelbosch, 2013. "Contractually stable networks," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(2), pages 483-499, May.
    14. Jagdambe, Subhash & Kannan, Elumalai, 2020. "Effects of ASEAN-India Free Trade Agreement on agricultural trade: The gravity model approach," World Development Perspectives, Elsevier, vol. 19(C).
    15. Sanjeev Goyal & Adrien Vigier, 2014. "Attack, Defence, and Contagion in Networks," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1518-1542.
    16. Haller, Hans & Hoyer, Britta, 2019. "The common enemy effect under strategic network formation and disruption," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 146-163.
    17. Jérôme Trotignon, 2009. "L'intégration régionale favorise-t-elle la multilatéralisation des échanges ?," Post-Print halshs-00335633, HAL.
    18. Anne O. Krueger, 1999. "Are Preferential Trading Arrangements Trade-Liberalizing or Protectionist?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 105-124, Fall.
    19. Mette Ersbak Bang Nielsen, 2006. "The endogenous formation of sustanaible trade agreements," Revista de Economía del Rosario, Universidad del Rosario, June.
    20. Egger, Hartmut & Egger, Peter & Greenaway, David, 2008. "The trade structure effects of endogenous regional trade agreements," Journal of International Economics, Elsevier, vol. 74(2), pages 278-298, March.

    More about this item

    Keywords

    Importance Sampling ; Filtering ; Particle filter ; Simulation ; SIR ; State space;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wrk:warwec:652. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/dewaruk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Margaret Nash (email available below). General contact details of provider: https://edirc.repec.org/data/dewaruk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.