The Farsighted Stability of Global Trade Policy Arrangements

Berens S, Chochua L (2017) Working Papers in Economics and Management; 08-2017.
Bielefeld: Bielefeld University, Department of Business Administration and Economics.

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In this paper, we study and compare the stability of trade policy arrangements in two different regulatory scenarios, one with and one without Preferential Trade Agreements (PTAs), i.e. current vs. modified WTO rules. Unlike the existing literature, our paper considers an extensive choice set of trade constellations, containing both available PTAs, Customs Unions (CUs) and Free Trade Agreements (FTAs), as well as Multilateral Trade Agreements (MTAs), while assuming unlimited farsightedness of the negotiating parties. With symmetric countries and under both the current and the modified WTO rules, the Global Free Trade (GFT) regime emerges as the unique stable outcome. In the case of asymmetry, the results are driven by the relative size of the countries. If the world is in the vicinity of symmetry and two out of three countries are close to identical while relatively smaller than the other one, the area where the GFT regime is stable increases when prohibiting PTAs. However, when two similar countries are relatively larger, the availability of PTAs is conducive to the stability of the GFT regime. Finally, if the world is further away from symmetry, full trade liberalization is not attainable at all and an area where the Most-Favoured-Nation (MFN) regime is stable appears in the scenario without PTAs. Thus, the direction of the effect of PTAs on trade liberalization depends on the degree of asymmetry among countries.
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Berens S, Chochua L. The Farsighted Stability of Global Trade Policy Arrangements. Working Papers in Economics and Management. Vol 08-2017. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2017.
Berens, S., & Chochua, L. (2017). The Farsighted Stability of Global Trade Policy Arrangements (Working Papers in Economics and Management, 08-2017). Bielefeld: Bielefeld University, Department of Business Administration and Economics. doi:10.4119/unibi/2915628
Berens, S., and Chochua, L. (2017). The Farsighted Stability of Global Trade Policy Arrangements. Working Papers in Economics and Management, 08-2017, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
Berens, S., & Chochua, L., 2017. The Farsighted Stability of Global Trade Policy Arrangements, Working Papers in Economics and Management, no.08-2017, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
S. Berens and L. Chochua, The Farsighted Stability of Global Trade Policy Arrangements, Working Papers in Economics and Management, vol. 08-2017, Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2017.
Berens, S., Chochua, L.: The Farsighted Stability of Global Trade Policy Arrangements. Working Papers in Economics and Management, 08-2017. Bielefeld University, Department of Business Administration and Economics, Bielefeld (2017).
Berens, Stefan, and Chochua, Lasha. The Farsighted Stability of Global Trade Policy Arrangements. Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2017. Working Papers in Economics and Management. 08-2017.
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