Gradualism in Free Trade Agreements: A Theoretical Justification

Richard Chisik

No 18, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: A notable feature of many recent trade agreements is the gradual, rather than immediate, reduction of trade barriers. In this paper we model trade liberalization as a cooperative relationship that evolves gradually in a non-cooperative environment. We show that specialization, capacity irreversibility and the development of trade-partner specific capital increase the benefit of continuing the liberalizing relationship and decrease, over time, the lowest obtainable self-enforcing tariff. By increasing the penalty of future defection, sunk costs ensure that the self-enforcing trading relationship starts slowly, but once in progress the level of cooperation continues to improve.

Keywords: Trade Negotiations; Gradualism; Irreversibilities; Economic Integration; Dynamic Games. (search for similar items in EconPapers)
JEL-codes: C73 F13 F15 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2010-08
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.arts.ryerson.ca/economics/repec/pdfs/wp018.pdf (application/pdf)

Related works:
Journal Article: Gradualism in free trade agreements: a theoretical justification (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rye:wpaper:wp018

Access Statistics for this paper

More papers in Working Papers from Toronto Metropolitan University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Doosoo Kim ().