Autore
Agur, Itai

Titolo
The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 2007 - Fascicolo: 17 - Pagina iniziale: 1 - Pagina finale: 32

This paper argues that the growing US trade deficit has caused the decline of the WTO and the rise of regional trade agreements. A country in de.cit prefers to retain market power against countries with a large surplus. Multilateral cooperation restricts its choice. This notion is formalized in a three-country game in which countries negotiate multilaterally and, if that fails, bilaterally. The multilateral agreement only holds for su¢ ciently even trade balances. When one country's deficit grows too large, a regionalist equilibrium emerges. A VAR analysis shows that the US trade balance explains over 50% of the variation in regional trade agreements.




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