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Partner-switching and Strategy-updating: A coevolving network model of free trade negotiation

August 4, 2016

This study develops a generalized coevolving network model to explain the evolution of multilateral free trade negotiation and the conditions under which a global FTA is most likely to emerge. Our formal and simulation analyses suggest that without having to forgo existing multilateral framework, countries, particularly leading countries, can maximize cooperation in the network toward the achievement of a global FTA through two different mechanisms. First, states can adopt the strategies of their partners that accrue greater accumulated payoffs from the interaction with immediate neighbors. On the other hand, cooperative countries can bypass defecting type partners and switch to more profitable partners to negotiate FTA. Over time, the payoffs accumulated through this partner-switching strategy can induce defecting-type partners to cooperate. Thus, a global FTA can be achieved when smaller, more exclusive free trade pacts are allowed to flourish. The application of approximate master equations (AMEs) introduced in this paper also provides more accurate estimation of the time evolution of network. Our more brief discussion of recent FTA cases that owe their origins to small cohesive networks lends additional empirical support to the model.
In future analysis, we plan to include statistical analysis of WTO’s PTA/RTA data with predictive analytics for newly launched FTA talks to further validate our theoretical claim.

From → Working papers

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