Sustaining multilateral cooperation among asymmetric countries: Does MFN help?

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• 作者：Kamal Saggi ; Faruk Sengul ; Halis Murat Yildiz
• 关键词：Most favored nation clause ; Cost asymmetry ; Multilateral cooperation ; Tariff discrimination
• 刊名：International Review of Economics and Finance
• 出版年：2007
• 出版时间：2007
• 年：2007
• 卷：16
• 期：4
• 页码：543-562
• 全文大小：279 K

文摘

The most favored nation (MFN) clause is widely understood to be the central pillar of the global multilateral trading system. Does the MFN principle of non-discrimination facilitate multilateral cooperation? Using a repeated game approach, we address this question in an oligopolistic three country model of intraindustry trade where production costs differ across countries. The analysis delivers two main results. First, both under MFN and tariff discrimination the incentive constraint of the high cost country determines whether or not free trade is sustainable. Second, the high cost country is more willing to cooperate multilaterally under MFN relative to tariff discrimination.