On the size and number of preferential trading arrangements

This paper uses a multi-country political economy model to investigate the possibility of achieving global free trade through the expansion of Preferential Trading Arrangements (PTAs). It is shown that bloc expansion would result in global free trade if blocs have an open membership. However, that would not be the case if membership were selective: at some point, the members of the bloc would stop accepting new members and this would lead to the creation of a second bloc. The likelihood of such a second bloc would make the members of the first bloc choose a larger bloc size than they would have chosen if only one bloc was allowed to form.     

Hub-and-Spokes Free Trade Agreements in the Presence of Technology Spillovers: An Application to the Western Hemisphere

Using a comparative-static general equilibrium model in the context of the Western Hemisphere, this paper compares the economic effects of a “hub-and-spokes” type of bilateral trade configuration (with Chile being the hub) with those of a more comprehensive regional FTA (namely, the FTAA). The model is augmented to account for the possibility of technology spillovers and its effective assimilation among participating economies. In particular, absorptive capacity, governance factor, proximity and socio-institutional congruence conjointly determine an economy’s capacity to capture the technology that is transmitted from the developed spoke United States to other regions. JEL no. D58, F13, O33     

Regional Cooperation among Microstates

Owing to their low bargaining power and high negotiation costs, microstates face severe disadvantages when dealing with the outside world. Forming a group with neighboring nations might be an effective instrument to address this problem. This paper presents a model in which the decision to form, expand or join a regional club is based on negotiation costs and bargaining power rather than on the traditional costs and benefits of trade integration. The model is used to determine the optimal and the equilibrium group size under various entry conditions. The welfare implications of the entry conditions are also examined.