The instability of globalization: applying evolutionary game theory to global trade cooperation

Abstract

AbstractA new wave of protectionism is threatening the open and cooperative international order. This paper applies evolutionary game theory to analyze the stability of international trade cooperation. Global trade liberalization is modeled as an iterated prisoner’s dilemma between all possible pairs of WTO member states. Empirical data are used to model the sizes and competitiveness of the respective markets, which then determine the resulting gains and costs of trade cooperation. Because of the large number of WTO member states and repeated rounds of their interactions, we use computer simulations to calculate the strategies that lead to the maximum ‘fitness’ of the respective member states and consequently diffuse through the population of countries. The results of our simulations show that international trade cooperation is not a stable equilibrium and that extreme levels of trade liberalization can be exploited successfully by protectionist trade policies.