International trade and strategic behaviour: a game theoretical analysis of the trade dispute between Turkey and Russia

Abstract

Starting from the premise that strategic interactions between countries influence trade policy decisions, this paper is a first attempt at exploring the possible outcomes of a trade dispute between Turkey and Russia, assuming that Turkey can lodge a complaint about Russia's protectionist move to the WTO Dispute Settlement Body (DSB). Employing the course of events during the recent economic conflict between the two countries, the article models the stages of a trade game wherein players exhibit non-cooperative behaviour. It finds that Turkey reporting Russia to the DSB depends on the cost of the dispute, which represents both economic losses and losses that can be considered disadvantages in a broader sense. The results show that in trade relations where asymmetric interdependence is observed, if both parties mutually commit to an international organisation, binding regulations may provide strategy options that are otherwise infeasible for the disadvantaged player.