Are Trade Blocs Conducive to Free Trade?
José Manuel Campa
University of Navarra - Madrid Campus - IESE Business School; National Bureau of Economic Research (NBER)
This paper examines the sustainability of free trade as an equilibrium outcome of an infinitely repeated tariff-setting game in a model of intraindustry trade. The paper shows that in a world consisting of a single dominant country (or "province") and numerous small countries, integration of the latter raises the likelihood of free trade. However, in a world consisting of equally sized integrated trading blocs, free trade is less likely the smaller the number of trading blocs.
JEL Classification: F17working papers series
Date posted: August 23, 1998
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