Date of Award
6-2009
Document Type
Union College Only
Degree Name
Bachelor of Arts
Department
Economics
First Advisor
Stephen Schmidt
Language
English
Keywords
china, game, trade, chavez, venezuela
Abstract
I use a game theoretical analysis to examine Chinese and Venezuelan trade where Venezuelan President Hugo Chavez seeks to form an anti-American alliance with China’s support. Chavez wishes to mimic the Cuban-Soviet alliance prevalent during the Cold War. I use economic game theory to demonstrate the implausibility of such a scenario. The game is supported by the fact that Venezuela can offer China subsidized cheap oil in exchange for political support. Indeed Chavez uses a similar ploy with neighboring Latin American countries. I first use the Heckscher-Ohlin model of international trade to demonstrate potential gains from trade. This carries the later implication that Venezuela can subsidize cheap oil to China, selling below the world price, in exchange for political support. The additional producer surpluses that Chavez realizes from trade are instrumental in a transfer of payments that occur in the game. I demonstrate that only when the game is played infinitely is an efficient outcome plausible where trade occurs. I conclude, however, that the transfer cannot be large enough to convince China to forgo political and economic relations with the United States. Venezuela can not subsidize enough cheap oil to induce China to act as the Soviet Union did during the Cold War. The Cuba-Soviet Union coalition that existed during the Cold War is not plausible for China and Venezuela.
Recommended Citation
Shaffren, Jacob Baer, "A new cold war? : a game theoretical analysis of Chinese and Venezuelan trade" (2009). Honors Theses. 1399.
https://digitalworks.union.edu/theses/1399