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BILATERALISM AND FREE TRADE *
Author(s) -
Goyal Sanjeev,
Joshi Sumit
Publication year - 2006
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2006.00395.x
Subject(s) - bilateralism , international economics , free trade , free trade agreement , international trade , international free trade agreement , economics , incentive , bilateral trade , trade barrier , sign (mathematics) , politics , multilateralism , china , market economy , mathematical analysis , mathematics , political science , law
We study a setting with many countries; in each country there are firms that can sell in the domestic as well as foreign markets. Countries can sign bilateral free‐trade agreements that lower import tariffs and thereby facilitate trade. We allow a country to sign any number of bilateral free‐trade agreements. A profile of free‐trade agreements defines the trading regime. Our principal finding is that, in symmetric settings, bilateralism is consistent with global free trade. We also explore the effects of asymmetries across countries and political economy considerations on the incentives to form trade agreements.