Why are Trade Agreements Regional?

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 67.2007

Classification and Topics

• Classification: Wirtschaft ; International Economic Order and Integration ; Trade Policy; International Trade Organizations ; Economic Integration ; Noncooperative Games
• Subject: Coalition ; Coordination ; Regionalism ; Preferential Trade Agreement ; Trade Liberalization ; Handelsregionalismus ; Außenhandelsliberalisierung ; Optimalzoll ; Koordination ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Zissimos, Ben
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/74214
• Last update: 10.03.2025, 11:44 AM CET