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Dynamic Free Trade Networks: Some Numerical Results
Author(s) -
Daisaka Hiroshi,
Furusawa Taiji
Publication year - 2014
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.12126
Subject(s) - network effect , economics , partition (number theory) , incentive , externality , network formation , microeconomics , free trade , incentive compatibility , international trade , international economics , computer science , mathematics , combinatorics , world wide web
To help predict whether the proliferation of free trade agreements ( FTAs ) continues until global free trade is effectively attained, this paper investigates dynamic paths of FTAs , generated by numerical simulations of a model of an FTA network formation game with many countries. The characteristics of the final FTA network naturally depend on how the proposer of an FTA is chosen in each period. The paper finds that if the country that has the largest incentive to form an FTA is chosen as a proposer in each period, the network evolution always leads to a unique final FTA network, which may or may not be the complete network of FTAs . FTA networks often evolve to a partition of the world into a small number of groups of asymmetric size owing to the negative network externality caused by preference erosion.