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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Spaghetti Regionalism
Caroline Freund
2000-680  (September 2000)

Abstract:  This paper examines the welfare implications of multiple free trade agreements in a model of imperfect competition. We show that free trade is the unique Nash equilibrium under the simple rule that any two countries can form a bilateral free trade agreement. Specifically, a country is always better off forming a bilateral trade agreement with every other country, irrespective of previous agreements. This suggests that each new preferential free trade agreement may be a step towards multilateral free trade.

Full paper (152 KB PDF)

trade, imperfect competition, bilateral agreement

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Last update: July 19, 2001