This paper compares equilibrium outcomes of two games of trade
liberalization. In the Bilateralism game, countries choose whether to
liberalize trade preferentially via a customs union (CU ), multilaterally,
or not at all. The Multilateralism game is a restricted version
of the Bilateralism game in that countries cannot form CUs and can
only undertake non-discriminatory trade liberalization. When countries
have symmetric endowments, global free trade is the only stable
equilibrium of both games. Allowing for endowment asymmetry, we
isolate circumstances where the option to form CUs helps further
the cause of multilateral liberalization as well as where it does not.
(JEL F12, F13)
"On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions."
American Economic Journal: Microeconomics,
Models of Trade with Imperfect Competition and Scale Economies
Trade Policy; International Trade Organizations