Networks of Free Trade Agreements Among Heterogeneous Countries

CORE Discussion Paper No. 2006/53

42 Pages Posted: 23 Aug 2006

See all articles by Ana Mauleon

Ana Mauleon

Université Saint-Louis - Bruxelles; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Huasheng Song

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Vincent J. Vannetelbosch

Center for Operations Research and Econometrics (CORE)

Date Written: June 2006

Abstract

The paper examines the formation of free trade agreements as a network formation game. We consider a three-country model in which international trade occurs between economies with imperfectly competitive product markets. Labor markets can be unionized and non-unionized in each country. We show that if all countries are of the same type (all of them are either unionized or non-unionized), the global free trade network is both the unique pairwise stable network and the uniquee efficient network. If some countries are unionized while others are non-unionized, other networks apart from the global free trade network are likely to be pairwise stable. However, the efficient network is always the global free trade network. Thus, a conflict between stability and efficiency may occur. Moreover, starting from the network in which no country has signed a free trade agreement, all sequences of networks due to continuously profitable deviations do not lead (in most cases) to the global free trade network, even when global free trade is stable.

Keywords: Free-trade agreements, network formation game, unionization

JEL Classification: F15, F16, C70

Suggested Citation

Mauleon Echeverria, Ana Carmen and Song, Huasheng and Vannetelbosch, Vincent J., Networks of Free Trade Agreements Among Heterogeneous Countries (June 2006). Available at SSRN: https://ssrn.com/abstract=926035 or http://dx.doi.org/10.2139/ssrn.926035

Ana Carmen Mauleon Echeverria (Contact Author)

Université Saint-Louis - Bruxelles ( email )

Brussels, 1000
Belgium

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Huasheng Song

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Vincent J. Vannetelbosch

Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
1348 Louvain-la-Neuve, 1348
Belgium

Register to save articles to
your library

Register

Paper statistics

Downloads
66
Abstract Views
691
rank
347,573
PlumX Metrics