Why are trade agreements regional? A theory based on noncooperative networks
Zissimos, Ben (2002) Why are trade agreements regional? A theory based on noncooperative networks. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.652).
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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 tarffs shift rents from foreign firms to domestic citizens. Lower transport costs imply higher rents and therefore higher tarffs. So regional FTAs have a higher pay-off 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.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HF Commerce
Q Science > QA Mathematics
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Free trade, Globalization -- Economic aspects, Noncooperative games (Mathematics), Trade blocs, Tariff|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||October 2002|
|Number of Pages:||42|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC), University of Warwick|
 Bhagwati, J. (1992); “Regionalism versus Multilateralism.” The World Economy, 15: 535-555.
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