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A Dynamic Model of International Trade

Patel, H; (2014) A Dynamic Model of International Trade. Doctoral thesis , UCL (University College London). Green open access

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Abstract

This thesis studies an international trade game modelled as a coordination game, where countries interact by following a simple behavioural rule of trying to reduce the gap between the maximal payoff and their own payoff. Countries are allowed to choose from one of two strategies – E (integrate into the world economy) or A (remain in autarky). D’Artigues and Vignolo [33] find that in this coordination game, the desire to imitate the leading country is frustrated by the impossibility of doing so. Hence, paradoxically, the desire of convergence into the world economy may lead to a more partitioned world economy. Envy is found to be the central motive behind developing countries opting for rejection of globalisation, and with sufficiently large heterogeneity in payoffs, spiteful behaviour overcomes imitation. The presence of envious people in a class of symmetric coordination games helps players to coordinate on a particular strict Nash equilibrium, which is always risk-dominant. This thesis first analyses the trade dynamics for a simple 2-country and a 3-country model and then derives conclusions on the more general n-country model. Results for the first trade model are based on the model output obtained for strict equilibria and strictly stable states of the trade game via numerical computations. This model is then extended by allowing countries to choose intermediate strategies, so that they can choose the level of integration with the world economy by a small strategy size δ>0. The trade dynamics for this continuous strategy trade game model are then derived for the 2-country scenario, which suggest that the lagging country can catch up with the leading country, leading to non-existence of any long-term equilibria.

Type: Thesis (Doctoral)
Title: A Dynamic Model of International Trade
Open access status: An open access version is available from UCL Discovery
Language: English
Keywords: international, coordination, game, stability, dynamics, trade, model, autarky, integration, envy, rivalry, strict, nash, equilibrium, countries
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Civil, Environ and Geomatic Eng
URI: https://discovery.ucl.ac.uk/id/eprint/1433156
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