THE NEW REGIONALISM AND THE THREAT OF PROTECTIONISM

This paper relies on game theory concepts to discuss both the incentiv es that lead countries to form themselves into trading blocs and what the relations between these blocs are likely to be. It argues that reg ional integration arrangements (RIAs) can work better as precommitment devices to internally cooperative policies than as global rules becau se they create a denser network or interlinked targets. The losses for a participant ostracized (or disciplined) from his bloc are therefore more immediate and tangible. The hope that RIAs can pave the way for global free trade, however, is unrealistic. As RIAs enlarge they may b e better off by exerting market power against outsiders rather than fo llowing a globally cooperative path, Interbloc trade relations will ul timately depend on how effective special interest groups are in distor ting bloc-wide trade policies to suit their particular interests. Thes e results highlight the importance of a multilateral trading system ab le to inhibit noncooperative behavior among trade blocs. J. Japan Int. Econ., Dec. 1994, 8(4), pp. 388-421. University of Strathclyde, Glasg ow, Scotland, and Department of Economics, Princeton University, Princ eton, New Jersey 08544-1021; International Trade Division, Internation al Economics Department, World Bank, Washington, DC. (C) 1994 Academic Press, Inc.