Endogenous trading bloc formation in a North‐South global economy

Satya P. Das and Subhadip Ghosh

Canadian Journal of Economics/Revue canadienne d'économique, 2006, vol. 39, issue 3, 809-830

Abstract: Abstract The majority of the trading blocs to date are between similar countries, rather than between developed and developing countries. This paper provides a rationale for why trading blocs among similar countries may arise as an equilibrium phenomenon. It develops a model of an asymmetric world economy in which there are at least four countries. The countries are differentiated with respect to their market size and they choose their trading partners. In the coalition‐proof Nash equilibrium, either there is global free trade or free trade areas are formed among similar countries. La plupart des blocs commerciaux sont formés de pays similaires plutôt que de pays développés et en voie de développement. Ce mémoire explique pourquoi ce genre de résultat peut émerger en tant que phénomène d'équilibre. On développe un modèle d'économie mondiale asymétrique dans lequel il y a au moins quatre pays. Les pays diffèrent par la taille et la nature de leurs marchés, et choisissent leurs partenaires commerciaux. Dans un équilibre libre de coalitions à la Nash, ou bien il existe un régime global de libre échange, ou bien des zones de libre échange entre pays similaires émergent.

Date: 2006
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https://doi.org/10.1111/j.1540-5982.2006.00371.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:canjec:v:39:y:2006:i:3:p:809-830

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