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Barriers to Global Free Trade through Bilateral Agreements
Author(s) -
Kiyotaki Fumi,
Miyakawa Toshiji
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.12053
Subject(s) - economics , free trade , context (archaeology) , international economics , transfer payment , payment , welfare , ex ante , international trade , macroeconomics , market economy , paleontology , finance , biology
This paper examines the formation of bilateral free trade agreements ( FTAs ) in the context of a dynamic noncooperative bargaining game with a random proposer. We show that global free trade (a grand coalition) does not necessarily occur unless transfer payments among countries are allowed. When transfer payments are possible, bilateral FTAs always achieve global free trade, but the ex‐ante and ex‐post inequalities of social welfare among countries are larger than those when all countries are independent because of the strategic bargaining behavior.