Is Bilateralism Bad?

27 Pages Posted: 17 Aug 2010

See all articles by Paul R. Krugman

Paul R. Krugman

Princeton University - Woodrow Wilson School of Public and International Affairs; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: May 1989

Abstract

In the 1980s the process of trade liberalization through multilateral negotiation seems to have run aground. In its place there have been a number of bilateral and regional moves toward liberalization. Some have been concerned that these local deals may, by undermining the multilateral process, actually reduce world trade and welfare. This paper develops a simple model of the effects of regional trading blocs, and shows that consolidation of the world into a smaller number of such blocs may indeed reduce welfare, even when each bloc acts to maximize the welfare of its members. Indeed, for all plausible parameter values world welfare is minimized when there are three trading blocs. More complex versions of the model offer softer results, but the main thrust is still to validate concern over the effects of bilateral and regional trade deals.

Suggested Citation

Krugman, Paul R., Is Bilateralism Bad? (May 1989). NBER Working Paper No. w2972. Available at SSRN: https://ssrn.com/abstract=1660275

Paul R. Krugman (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States
609-258-4570 (Phone)
609-258-2809 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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