Free trade networks |
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Authors: | Taiji Furusawa Hideo Konishi |
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Affiliation: | a Graduate School of Economics, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo, 186-8601 Japan b Department of Economics, Boston College, Chestnut Hill, MA 02467, USA |
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Abstract: | The paper examines the formation of free trade agreements (FTAs) as a network formation game. We consider an n-country model in which (possibly asymmetric) countries trade differentiated industrial commodities. We show that if all countries are symmetric, the complete FTA network is pairwise stable and it is the unique stable network if industrial commodities are not highly substitutable. We also compare FTAs and customs unions (CUs) as to which of these two regimes facilitates global trade liberalization, noticing that unlike CUs, each signatory of an FTA can have another FTA without consent of other member countries. |
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Keywords: | Free trade agreements Customs unions Network formation game Pairwise stability Complete FTA network |
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