Global free trade is in the core of a customs union game

Abstract

This paper shows nonemptiness of the core of a customs union game with a status quo equilibrium with tariffs by employing an appropriate notion of the core as in Kowalczyk and Sjöström (1994 , Economica). Specifically, we find that if customs unions may have no effects on nonmember countries as in Ohyama (1972 , Keio Economic Studies) and Kemp and Wan (1976 , Journal of International Economics) then a subset of countries forming such a customs union does not block global free trade when accompanied by so-called Grinols transfers (Grinols, 1981 , Journal of International Economics). © 2009 Blackwell Publishing Ltd.