Why are Trade Agreements Regional?

Benjamin Zissimos

No 2007.67, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper shows how distance may be used to coordinate on a unique equilibrium in which trade agreements are regional. Trade agreement formation is modeled as coalition formation. In a standard trade model with no distance between countries, a familiar problem of coordination failure arises giving rise to multiple equilibria; any one of many possible trade agreements can form. With distance between countries, and through strategic interaction in tariff setting, regional trade agreements generate larger rent-shifting effects than non regional agreements, which countries use to coordinate on a unique equilibrium. Under naive best responses, regional agreements give way to free trade.

Keywords: Coalition; Coordination; Regionalism; Preferential Trade Agreement; Trade Liberalization (search for similar items in EconPapers)
JEL-codes: C72 F02 F13 F15 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-gth, nep-int and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Why are Trade Agreements Regional? (2011)
Working Paper: Why are Trade Agreements Regional? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2007.67

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