Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/208562 
Year of Publication: 
2010
Series/Report no.: 
Working paper No. 2-2010
Publisher: 
Copenhagen Business School (CBS), Department of Economics, Frederiksberg
Abstract: 
A key characteristic of any trade bloc is its “flexibility” – the extent to which it can be modified or augmented by existing members. This paper investigates how prospective trade bloc members value the flexibility of proposed trade agreements in a changing trading environment. We demonstrate that country characteristics as well as the nature of the trade shock influence a nation’s desire for trade bloc flexibility. Our model of endogenous coalition formation yields predictions that are consistent with three stylized facts which characterize regionalism: (i) overlapping trade agreements, (ii) the popularity of free trade areas relative to customs unions and (iii) renegotiation or disbandment of existing trade agreements is rare. Finally, for the first time in the literature, we provide clear predictions about the identity of “hub” and “spoke” trade bloc members when overlapping free trade areas arise in equilibrium.
Subjects: 
Trade agreement flexibility
optimal trade bloc design
regional trade agreements
free trade areas
customs unions
JEL: 
F12
F13
F14
F15
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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