Strategic competition in the Asian mega‐regionalism and optimal choices

Guijun Lin, Jiansuo Pei and Jin Zhang
Authors registered in the RePEc Author Service: 裴建锁

The World Economy, 2018, vol. 41, issue 8, 2102-2128

Abstract: The strategic interactions of mega‐regional blocs such as the Trans‐Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership and even the ‘One Belt and One Road’ (OBOR) in the Asia‐Pacific reflects the dual purposes of large countries as they seek not only the welfare gains from trade liberalisation, but also the leadership in a trading bloc or the right to set the rules. This paper designs two sequential network formation games – a leadership game and a trade liberalisation game, to model this phenomenon and predict the equilibrium result. In the first game, we show how the incorporation of leadership affects the choices among different trading structures. Specifically, we show that the parallel trading blocs emerge as the equilibrium outcome only when there exists large loss from giving up leadership. In the second game, we describe how the globalisation is arrived and conduct numerical simulations to test our theoretical results. The predictions of the game are supported by the real‐world data based on simulation results.

Date: 2018
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