Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/74214
Authors: 
Zissimos, Ben
Year of Publication: 
2007
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 67.2007
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.
Subjects: 
Coalition
Coordination
Regionalism
Preferential Trade Agreement
Trade Liberalization
JEL: 
F02
F13
F15
C72
Document Type: 
Working Paper

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