Expansion of Free Trade Agreements, Overlapping Free Trade Agreements,and Market Size
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This chapter investigates whether the formation of bilateral overlapping free trade agreements (FTAs) between dissimilar countries becomes a building block or a stumbling block for multilateral free trade (MFT). Our main conclusions are as follows. Suppose that a bilateral FTA between symmetric countries is already formed. (i) A bilateral FTA becomes a stumbling block for MFT through overlapping FTAs, while it acts as a building block for MFT through expansion of FTAs when market sizes of member and nonmember countries are quite similar. (ii) When the market size of a nonmember country is smaller than that of member countries, then overlapping FTAs lead to MFT, while FTA expansion may or may not. (iii) If the nonmember country of the original FTA is large, then expansion of the FTA may not achieve MFT, while overlapping FTAs cannot. (iv) When the market size of the nonmember country is quite large compared with member countries, MFT never arises through overlapping FTAs, FTA expansion, or negotiation of a multilateral trade agreement.
KeywordsExpansion of FTA Overlapping FTA Hub and spoke Building block Stumbling block
This work was supported by Grants-in-Aid for Scientific Research (no. 23530303, 26380340, and 26380318). All remaining errors are ours.
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