International Trade & FDI - International Trade Free Trade= Prisoner's Dilemma C D C Free free Free tariff D Tariff free Tariff tariff \u25cf \u25cf

International Trade & FDI - International Trade Free...

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International Trade Free Trade= Prisoner's Dilemma C D C Free free Free tariff D Tariff free Tariff tariff Theory Application of the standard prisoner's dilemma neglects the most critical aspect of free trade agreements in an anarchic international system- security externalities What are security externalities? Gains from trade increase the efficiency of one's domestic resources and free economic resources for military use In other words, free trade enhances a nation's potential military power The appropriate modeling is a modified prisoner’s dilemma that accounts for how externalities affect one trading’s partner Trading with an adversary Discount factor: LOW so tariff-tariff Trade with an adversary produces a security diseconomy Trading with an ally Discount factor: HIGH so free-free Trade with an ally produces a positive externality Does trade reduce conflict?
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  • Fall '17
  • J. Weston Jamison

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