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Does a Bilateral FTA Pave the Way for Multilateral Free Trade?
Author(s) -
Nomura Ryoichi,
Ohkawa Takao,
Okamura Makoto,
Tawada Makoto
Publication year - 2013
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12028
Subject(s) - economics , international trade , international economics , block (permutation group theory) , free trade agreement , bilateral trade , international free trade agreement , pareto principle , free trade , political science , operations management , law , mathematics , china , geometry
We determine whether a bilateral free trade agreement ( FTA ) acts as a building block for multilateral free trade ( MFT ) in a three‐country model with asymmetric domestic markets. Our main conclusions are as follows: (i) A bilateral FTA between two large countries can act as a building block for MFT ; (ii) A bilateral FTA between two small countries acts as a stumbling block for MFT ; (iii) This FTA can be Pareto improving when a multilateral trade agreement is not feasible.