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Two essays on trade agreements
Dissertation   Open access

Two essays on trade agreements

Liming Huang
Doctor of Philosophy (Ph.D.), Drexel University
Jun 2013
DOI:
https://doi.org/10.17918/etd-4182
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Abstract

Free trade--Mexico Free trade--China Economics
In the first chapter we study the consequences of regional free trade agreements (FTAs) for global free trade. In the context of a three-country, two-good general equilibrium trade model, we derive stable Nash equilibria of two coalition formation games of trade liberalization: One in which FTAs are ruled out, and another in which countries have the option to form FTAs. Our analysis reveals that there exist circumstances under which the option to form FTAs may facilitate the attainment of global free trade (building blocks). However, there also exist circumstances under which FTAs stand in the way of global free trade ("stumbling blocks"). Two important determinants of these possibilities are relative country size and the structure of comparative advantage. In the second chapter we examine the effect of the formation of FTAs on non-FTA countries tariffs using detailed data on tariffs and trade flows for the US, Mexico, and China from 1992 to 1997. We find that an increase in an FTA members tariff discrimination against a non-member leads to a reduction in the non-members tariffs. We also find that an increase in the non-members size relative to its FTA-member competitor (which competes with the non-member because they have the same comparative advantage) causes a rise in its tariffs. The relative strength of the two effects, determines whether the FTA acts as a building block or stumbling block to a non-members trade liberalization.

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