Free Trade Networks with Transfers

21 Pages Posted: 12 May 2005

See all articles by Taiji Furusawa

Taiji Furusawa

University of Tokyo

Hideo Konishi

Boston College - Department of Economics

Abstract

We investigate the network of bilateral free trade agreements (FTAs) in the context of a network formation game with transfers. In a previous paper we showed that without international transfers countries with different industrialization levels cannot sign an FTA, so that the global free trade network, in which every pair of countries signs an FTA, is not in general pairwise-stable. In this paper we show that, even if the world consists of fairly asymmetric countries, the global free trade network is pairwise-stable when transfers between FTA signatories are allowed. Moreover, it is a unique pairwise-stable network unless industrial commodities are highly substitutable.

Suggested Citation

Furusawa, Taiji and Konishi, Hideo, Free Trade Networks with Transfers. Japanese Economic Review, Vol. 56, No. 2, pp. 144-164, June 2005. Available at SSRN: https://ssrn.com/abstract=722257

Hideo Konishi (Contact Author)

Boston College - Department of Economics ( email )

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