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The evolution of free trade networks

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  • Zhang, Jin
  • Cui, Zhiwei
  • Zu, Lei

Abstract

This paper considers the evolutionary dynamics of a free trade agreement (FTA) network formation game among N countries. We first explore the static model introduced by Goyal and Joshi (2006) and precisely characterize the set of pairwise stable FTA networks. Then, we develop a dynamic model under random perturbations and identify long-run outcomes to remove prediction uncertainty inherited from static analysis. The results show that both partial free trade and global free trade will result when there are only three countries. However, when more countries are involved, only the complete FTA network emerges.

Suggested Citation

  • Zhang, Jin & Cui, Zhiwei & Zu, Lei, 2014. "The evolution of free trade networks," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 72-86.
    • Handle: RePEc:eee:dyncon:v:38:y:2014:i:c:p:72-86
    DOI: 10.1016/j.jedc.2013.09.004
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    Cited by:

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    2. Shan Li & Xun Li & Wei Lang & Haohui Chen & Xiaoguang Huang, 2021. "The Spatial and Mechanism Difference in the Export Evolution of Product Space in Global Countries," Sustainability, MDPI, vol. 13(4), pages 1-17, February.
    3. James Lake, 2017. "Free Trade Agreements As Dynamic Farsighted Networks," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 31-50, January.
    4. Stefan Berens & Lasha Chochua & Gerald Willmann, 2021. "The Farsighted Stability of Global Tade Policy Arrangements," CESifo Working Paper Series 9213, CESifo.
    5. Hiroshi Daisaka & Taiji Furusawa, 2014. "Dynamic Free Trade Networks: Some Numerical Results," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 469-487, August.
    6. Ding, Haoyuan & Jin, Yuying & Liu, Ziyuan & Xie, Wenjing, 2019. "The relationship between international trade and capital flow: A network perspective," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 1-11.
    7. Yasunori Okumura, 2015. "Free Trade Networks on Non-tariff Barriers," Journal of Industry, Competition and Trade, Springer, vol. 15(3), pages 223-238, September.
    8. Berens, Stefan & Chochua, Lasha & Willmann, Gerald, 2021. "The farsighted stability of global trade policy arrangements," Kiel Working Papers 2193, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Free trade agreements; Global free trade; Network formation game; Stochastic stability analysis;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • F15 - International Economics - - Trade - - - Economic Integration

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