FROM BILATERAL APPROACH TO GLOBAL FREE TRADE

Ali Yavuz Polat ()
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Ali Yavuz Polat: Abdullah Gul University, Turkey

Eurasian Journal of Economics and Finance, 2018, vol. 6, issue 3, 52-58

Abstract: Previous literature questions whether it is possible to reach global free trade from a bilateral approach, and concludes that bilateral trade negotiations cannot guarantee global free trade. But his result is sensitive to the assumption on the existence of only one large country that has the enforcement power. We develop a model that has two large countries where they may interact/cooperate or compete. Assuming that the two large countries are in a Bertrand competition, bilateral approach still cannot lead to global free trade. On the other hand, we found that the outcome is the efficient allocation. This is due to the fact that all countries that have valuation more than the cost of the free trade are being offered free trade. Moreover, multilateral negotiations are found to be equivalent to bilateral case.

Keywords: Bilateral Approach; Free Trade; Mechanism Design; Principal Agent (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ejn:ejefjr:v:6:y:2018:i:3:p:52-58

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