Why are trade agreements regional?

Benjamin Zissimos

Research output: Contribution to journalArticle

5 Citations (Scopus)

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 occurs, giving rise to multiple equilibria; any one of many possible trade agreements can form. With distance between countries, regional trade agreements generate larger rent-shifting effects than nonregional agreements. Countries use these effects to coordinate on a unique equilibrium.
Original languageEnglish
Pages (from-to)32-45
Number of pages14
JournalReview of International Economics
Volume19
Issue number1
DOIs
Publication statusPublished - 2011

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