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FTA: A Stumbling Bloc towards Global Free Trade

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  • Qiong Wang

Abstract

This paper examines the impact of free trade areas (FTAs) on the world trading system. It uses a partial equilibrium framework among three countries where Cobb-Douglas utility function is applied. It is found that FTAs are primarily detrimental to multilateral trading system and are stumbling blocs to global free trade (GFT), whether in a symmetric or an asymmetric case. This conclusion is based, firstly, upon the findings that the utility of member countries in a FTA are higher than status quo, so they are interested in forming a FTA, and secondly, after forming a FTA, they don't have incentive to let the third country join in since their utility would be lowered. In addition, this paper shows that when there are two large countries and a small one, it is more profitable for one large country to form a FTA with the small one instead of the other large one.

Suggested Citation

  • Qiong Wang, 2020. "FTA: A Stumbling Bloc towards Global Free Trade," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(1), pages 1-22, January.
    • Handle: RePEc:ibn:ijefaa:v:12:y:2020:i:1:p:22
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    References listed on IDEAS

    as
    1. Kamal Saggi & Halis Murat Yildiz, 2018. "Bilateral Trade Agreements and the Feasibility of Multilateral Free Trade," World Scientific Book Chapters, in: Kamal Saggi (ed.), Economic Analysis of the Rules and Regulations of the World Trade Organization, chapter 8, pages 168-185, World Scientific Publishing Co. Pte. Ltd..
    2. Richard E. Baldwin, 2011. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocks on the Path to Global Free Trade," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 2, Edward Elgar Publishing.
    3. Raymond Riezman, 1999. "Can Bilateral Trade Agreements Help Induce Free Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 32(3), pages 751-766, May.
    4. John Piggott & Alan Woodland (ed.), 1999. "International Trade Policy and the Pacific Rim," International Economic Association Series, Palgrave Macmillan, number 978-1-349-14543-0.
    5. Cadot, Olivier & de Melo, Jaime & Olarraga, Marcelo, 1999. "Regional Integration and Lobbying for Tariffs against Nonmembers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 635-657, August.
    6. Oecd & Nea, 2011. "Bilateral and Multilateral Agreements," Nuclear Law Bulletin, OECD Publishing, vol. 2010(2), pages 93-106.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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