Template-Type: ReDIF-Paper 1.0
Author-Name: Paul Missios
Author-X-Name-First: Paul
Author-X-Name-Last: Missios
Author-Email: pmissios@economics.ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Author-Name: Kamal Saggi
Author-X-Name-First: Kamal
Author-X-Name-Last: Saggi
Author-Email: kamal.saggi@vanderbilt.edu
Author-Workplace-Name: Department of Economics, Vanderbilt University, Nashville, TN
Author-Name: Halis Murat Yildiz
Author-X-Name-First: Halis
Author-X-Name-Last: Yildiz
Author-Email: hyildiz@economics.ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Title: External Trade Diversion, Exclusion Incentives and the Nature of Preferential Trade Agreements
Abstract: In a game of endogenous trade agreements between three countries, we show that while the pursuit of customs unions (CUs) prevents global free trade from emerging as a coalition-proof Nash equilibrium, the pursuit of free trade agreements (FTAs) does not. This result refl?ects the relatively ?exible nature of FTAs: whereas each FTA member can independently undertake further trade liberalization with respect to the non-member, CU members must do so as a group due to their common external tariff. By diverting members?exports away from the non-member, both types of trade agreements induce the non-member to voluntarily lower its import tariffs. 
Classification-JEL: F11, F12
Keywords: Free Trade Agreement, Customs Union, Hub and Spoke Agreements, Free Trade, Optimal Tariffs, PTA, FTA. 
Length: 44 pages
Creation-Date: 2014-09
Revision-Date: 2015-09
Number: 047
File-URL: http://economics.ryerson.ca/workingpapers/wp047.pdf
File-Format: Application/pdf
File-Function: First version, 2014
File-URL: http://economics.ryerson.ca/workingpapers/wp047R.pdf
File-Format: Application/pdf
File-Function: Revised version, 2015
Handle: RePEc:rye:wpaper:wp047