Abstract
Via the intra-industry trade Cournot model in heterogeneous goods, the study deals with the strategies of how to select partner countries of free trade agreement on basis of social welfare criteria of a country. Thus, it gets the following results: Firstly, in a two-side FTA lowers tariffs on imports from any-member states. The FTA established on the similar market size of states. To establish a one-step global FTA is easier than other ways. Finally, as for allied strategies of the FTA, the first priority big country wants to ally itself with is a medium-sized country, the second one of which is a small country. Nevertheless, it is likely that big country will never have allies; the top priority a medium-sized country wants to ally itself with is a big country; a small country is willing to ally itself to any country.
Highlights
The global community has started a fever of economic integration
When θ was relatively small, the optimal import tariff was positively correlated to θ. 2) After Free Trade Area (FTA) establishment for both nations, the tariff imposed on non-member nations would be reduced simultaneously
The said allowable condition for market scale gaps happening to FTA establishment would be reduced with substitute degrees for products increased
Summary
The global community has started a fever of economic integration. For example, be expected to set up the Asia-Pacific free trade area (FTAAP) in the 2009 APEC meeting, EC eastern expansion in 2004, NAFTA, CACM and MERCOSUR are scheduled to create America Free Trade Area. When 0 < θ < θ , the increment of θ values would reduce the optimal tariff It meant when trade goods showed lower initial substitute degrees, products naturally showed more difference. Taking θ initial values approximating to 0 for example, it meant when the difference of foreign products was maximized, it would be next to different goods Under such a condition, it meant the import of foreign products was basically correlated to the profit of local makers, but it was highly correlated to local consumers. Taking θ initial values approximating to 1 for example, it meant the difference of foreign goods was extremely small and they were almost the same goods Under such a situation, it meant the import of foreign products basically posed higher influence on the profit of local makers but showed lower influence on local consumers. Under the fixed values of qi0 , θ and b, the social welfare levels of various nations and the foreign market scales were positively correlated
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