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Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences

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  • Joachim Stibora
  • Albert de Vaal

Abstract

We develop a Ricardian model of trade with nonhomothetic preferences to analyze preferential trade agreements (PTAs) among countries of different stages of economic development. The richer a country is, the more likely will PTAs improve its terms of trade, also when it is a non-member. Rich non-member countries are also less likely to incur welfare losses from PTAs. PTA membership only guarantees welfare gains for countries that are too poor to import the goods rich countries produce. For all other countries, the welfare effects of joining PTAs depend on the world income distribution and on the strength of comparative advantages.

Suggested Citation

  • Joachim Stibora & Albert de Vaal, 2015. "Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 239-270, May.
    • Handle: RePEc:bla:reviec:v:23:y:2015:i:2:p:239-270
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    2. Gnangnon, Sèna Kimm, 2021. "Do Unilateral Trade Preferences Help Reduce Poverty in Beneficiary Countries?," EconStor Preprints 247346, ZBW - Leibniz Information Centre for Economics.

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