Global Free Trade is in the Core of a Customs Union Game

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 <link rid="b9">Kowalczyk and Sjöström (1994</link>, <i>Economica</i>). Specifically, we find that if customs unions may have no effects on nonmember countries as in <link rid="b12">Ohyama (1972</link>, <i>Keio Economic Studies</i>) and <link rid="b6">Kemp and Wan (1976</link>, <i>Journal of International Economics</i>) then a subset of countries forming such a customs union does not block global free trade when accompanied by so-called Grinols transfers ( <link rid="b4">Grinols, 1981</link>, <i>Journal of International Economics</i>). Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.