Bilateral versus Multilateral Trade and Investment Liberalisation

Peter Egger, Mario Larch and Michael Pfaffermayr

The World Economy, 2007, vol. 30, issue 4, 567-596

Abstract: To assess the welfare effects of bilateral versus multilateral trade and/or investment liberalisation in general equilibrium, we set up a three‐country and three‐factor knowledge‐capital model of trade and multinational activity. Numerical simulation results indicate that multilateral liberalisation tends to dominate bilateral liberalisation in welfare terms. A transition economy tends to prefer bilateral over multilateral liberalisation to avoid plant relocation. For similar reasons, a developed country may prefer bilateral over multilateral liberalisation, if the other economies exhibit big relative factor endowment differences.

Date: 2007
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