Why do countries pursue bilateral trade agreements: a case study of North America

Michael Kouparitsas ()

No WP-97-20, Working Paper Series, Macroeconomic Issues from Federal Reserve Bank of Chicago

Abstract: Current trade theory argues that countries pursue bilateral trade agreements to escape from a terms-of-trade driven prisoners' dilemma. This paper offers an empirical test of the theory. Using simulation results from a quantitative trade model of North America I show that the non-cooperative and cooperative payoffs implicit in the CFTA and NAFTA take on the two essential elements of a prisoners' dilemma. First, my results suggest that irrespective of county size unilateral liberalization makes the liberalizing country worse off, while making its regional trading partner better off. Next, I show that cooperative bilateral agreements make both liberalizing partners better off.

Keywords: North; American; Free; Trade; Agreement (search for similar items in EconPapers)
Date: 1997
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