Template-Type: ReDIF-Paper 1.0
Author-Name: Richard Chisik
Author-X-Name-First: Richard
Author-X-Name-Last: Chisik
Author-Email: rchisik@economics.ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Title: Gradualism in Free Trade Agreements: A Theoretical Justification
Abstract: A notable feature of many recent trade agreements is the gradual, rather than immediate, reduction of
trade barriers. In this paper we model trade liberalization as a cooperative relationship that evolves
gradually in a non-cooperative environment. We show that specialization, capacity irreversibility and the
development of trade-partner specific capital increase the benefit of continuing the liberalizing
relationship and decrease, over time, the lowest obtainable self-enforcing tariff. By increasing the penalty
of future defection, sunk costs ensure that the self-enforcing trading relationship starts slowly, but once in
progress the level of cooperation continues to improve.
Classification-JEL: F13, F15, C73.
Keywords: Trade Negotiations, Gradualism, Irreversibilities, Economic Integration, Dynamic Games.
Length: 44 pages
Creation-Date: 2010-08
Number: 018
File-URL: http://economics.ryerson.ca/workingpapers/wp018.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp018