An Oligopolistic Theory of Regional Trade Agreements

Christian Soegaard

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Why are trade agreements regional? I address this question in a model of oligopoly featuring product variety. Tariffs have the effect of manipulating a country's terms of trade and shifting profits towards the domestic market at the expense of foreign trade partners. Countries endogenously form into regional trade agreements or global free trade in a framework where any agreement must be sustained by repeated interaction. A crucial parameter determining the degree of regionalism is product variety. I demonstrate that for a given trade cost and discount factor, increases in product variety leads to greater scope for global free trade relative to regional trade agreements. JEL classification: trade policy ; self-enforceability ; trade costs ; regional trade agreements. JEL codes: F13 ; F15.

Date: 2013
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (5)

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Working Paper: An Oligopolistic Theory of Regional Trade Agreements (2014)
Working Paper: An Oligopolistic Theory of Regional Trade Agreements (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1007

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