Research
Published Papers
Dynamic Preferential Trade Agreement Formation in a Unified Framework from Export and Import Lobby Perspectives (with Halis Murat Yildiz, Accepted in Economic Inquiry)Â
In this paper, using a dynamic preferential trade agreement (PTA) formation model, we show that the presence of lobbies from exporting and import competing sectors substantially impacts the nature and extent of PTA formation. On one hand, under a free trade agreement (FTA) formation, the extent of export and import lobby generates exclusion incentives of members and free riding incentives of a nonmember that constrain the expansion to global free trade. On the other hand, in a customs union (CU) formation game, we show that only exclusion incentive of CU members constrains expansion to global free trade. To this end, we propose a relatively flexible trade model that integrates competing exporters and competing importers models in a unified framework. Using this hybrid trade model, we endogenize the choice between FTA and CU to show that the export and import lobby generates tension between the flexibility benefit of FTA and the coordination benefit of CU. These tensions reveal that, while the ability to form FTA always serve as a PTA building bloc, but CU may serve as a PTA building bloc or a PTA stumbling bloc.
Working Papers
Bilateralism vs Multilateralism: Role of Political Economy for the Prospect of Global Free Trade (with Halis Murat Yildiz, Revise/resubmit Canadian Journal of Economics) (Job Market Paper)
In this paper, we endogenize trade agreement formation using Coalition Proof Nash Equilibrium (CPNE) concept, when governments are politically motivated to protect the interests of its exporting and import competing sectors. We investigate how the freedom to pursue Free Trade Agreements (FTAs) affects the prospect of global free trade relative to pure multilateralism. To the best of our knowledge, this is the first paper that uses a unified framework of competing exporters and competing importers model, where political pressures from both exporting and import competing sectors influence governments' decision in trade agreement formation and tariff setting. We show that the degree of political bias in protecting their import competing sectors and exporting sectors is crucial in determining the strength of free riding incentives, exclusion incentives and whether the ability to form FTAs acts as building or stumbling blocs towards global free trade. We find that, when the political bias toward exporting and import competing sectors is sufficiently weak, FTAs only act as strong building blocs towards free trade. However, when the political bias toward the exporting sectors is at the intermediate range and political bias toward import competing sectors is sufficiently large, FTA formation acts as strong stumbling blocs.
Role of Economies of Scale on the Extent of PTA Formation (with Frank Stahler and Halis Murat Yildiz)
In this paper, we endogenize the types of Preferential Trade Agreements (PTAs) that countries pursue: Free Trade Agreement (FTA) and Custom Union (CU). We use oligopoly model of trade and Markov perfect equilibrium concept to characterize the equilibrium trade agreement formations in dynamic setting. Firm production in each country is subject to a certain degree of (dis)economies of scale, and we examine how it impacts countries' incentives in forming trade agreements. In our three country model, the following incentives prevent free trade from emerging. Under FTA formation, FTA nonmember holds free riding incentive that prevents free trade from emerging, whereas under CU, for sufficiently large diseconomies of scale, CU members hold exclusion incentive that prevents free trade from emerging. Considering these incentives, we endogenize the two types of PTAs, and the following result emerges. If countries are sufficiently myopic, then under economies of scale, constant returns to scale or sufficiently small diseconomies of scale, CU serves as "PTA building bloc" towards free trade. If countries are sufficiently farsighted and diseconomies of scale is sufficiently large, FTA serves as "PTA building bloc" or else CU serves as "PTA stumbling bloc".