Are Trade Blocs Conducive to Free Trade?
Posted: 23 Aug 1998
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: F17
Suggested Citation: Suggested Citation