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Why are trade agreements regional? A theory based on noncooperative networks
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Zissimos, Ben, 1970- (2002) Why are trade agreements regional? A theory based on noncooperative networks. Working Paper. University of Warwick, Department of Economics, Coventry.
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
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 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 |
| Date: | October 2002 |
| Number: | No.652 |
| 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| Status: | Not Peer Reviewed |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 |
| References: | [1] Bhagwati, J. (1992); “Regionalism versus Multilateralism.” The World Economy, 15: 535-555. [2] Bhagwati, J. D. Greenaway and A. Panagaraya (1998) “Trading Preferentially: Theory and Policy.” Economic Journal 108(449): 1128-48 . [3] Bala, V. and S. Goyal (2000); “A Noncooperative Model of Network Formation.” Econometrica, 68(5): 1181-1229. [4] Bond, E. (1999) “Multilateralism, Regionalism, and the Sustatainability of ‘Natural’ Trading Blocs.” Penn State University mimeograph. [5] Brander, J. and B. Spencer (1984); “Tari¤ Protection and Imperfect competition.” chapter in H. Kierkowski (ed.) Monopolistic Competition and International Trade, Oxford University Press, Oxford. [6] Coase, R.H. (1960); ”The Problem of Social Costs”, Journal of Law and Economics. [7] Frankel, J., E. Stein and S. Wei (1995); “Trading Blocs and the Americas: The Natural, the Unnatural and the Super-natural.” Journal of Development Economics, 47: 61-95. [8] Furusawa, T. and H. Konishi (2002) “Free Trade Networks.” Yokohoma National University and Boston College mimeograph. [9] Goyal and Joshi (2000) “Bilateralism and Free Trade.” Erasmus University and George Washington University mimeograph. [10] Jackson, J. (1989); The World Trading System. MIT Press, Cambridge Massachusetts, 417 pages. [11] Krugman, P. (1991); “Is Bilateralism Bad?” in E. Helpman and A. Razin, (eds.), International Trade and Trade Policy, MIT Press, Cambridge. [12] Myerson, R. (1977); “Graphs and Cooperation in Games.” Mathematics of Operations Research 2: 225-229. [13] Slikker, M. and A. van den Nouweland (2000); “Communication Situations with Asymmetric Players.” Mathematical Methods of Operations Research, 52: 39-56. |
| URI: | http://wrap.warwick.ac.uk/id/eprint/1535 |
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