Multilateral stability and efficiency of trade agreements: A network formation approach

Nathalie Jorzik and Frank Mueller‐Langer
Authors registered in the RePEc Author Service: Mueller-Langer

The World Economy, 2020, vol. 43, issue 2, 355-370

Abstract: We study the endogenous network formation of bilateral and multilateral trade agreements by means of hypergraphs and introduce the equilibrium concept of multilateral stability. We consider multicountry settings with a firm in each country that produces a homogeneous good and competes as a Cournot oligopolist in each market. Under endogenous tariffs, we find that a multilateral trade agreement governing the rules and norms of tariff setting, that is the WTO/GATT regime itself, together with a bilateral preferential trade agreement (PTA) is multilaterally stable. We also find that the existence of the WTO is necessary for the stability of the trading system. We further analyse the impact of PTAs on multilateral tariffs within the WTO. We find that the formation of PTAs increases countries' incentives for multilateral tariff reduction.

Date: 2020
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Citations: View citations in EconPapers (5)

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https://doi.org/10.1111/twec.12896

Related works:
Working Paper: Multilateral Stability and Efficiency of Trade Agreements: A Network Formation Approach (2013)
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