On the Optimal Size and Composition of Customs Unions: An Evolutionary Approach

Area of Science:

• Economics
• International Trade
• Mathematical Modeling

Background:

• Customs unions facilitate market access and intra-regional trade.
• A common external trade policy is a key condition for customs union membership.
• Divergent economic structures can hinder the formation of large customs unions.

Purpose of the Study:

• To develop a novel mathematical approach for modeling optimal customs union size and composition.
• To identify non-dominated configurations of customs unions using global trade and economic data.
• To analyze the trade-offs between global benefits and individual country impacts.

Main Methods:

• Formulated as a bi-objective combinatorial non-linear problem.
• Employed a multi-objective evolutionary algorithm (NSGA-II).
• Utilized trade flow and economic characteristic data for 200 countries.

Main Results:

• Identified 445 configurations superior to the current global landscape of customs unions.
• Found that optimal configurations often benefit the global economy on average, but not necessarily every individual country.
• The most effective structures involve a mix of large and small customs unions.

Conclusions:

• The optimal structure for customs unions may involve a hierarchical approach with a few large and multiple smaller blocs.
• Mathematical modeling and evolutionary algorithms can reveal efficient global trade configurations.
• Balancing common external policies with diverse national economic needs is crucial for maximizing benefits.