Can Growth of a Trading Partner Harm a Country?
AbstractCan growth of a trading partner harm a country? This paper seeks to answer this question through the use of an eclectic trade model which is similar in flavour to Markusen (1986). This paper makes two contributions. First, it develops a simple and tractable model of international trade based on a combination of imperfect competition, comparative advantage, and identical but non-homothetic preferences in a three country framework. Second, it uses this framework to consider the possibility of losses from partner-country growth in a free-trading environment. We find that the presence of nonhomothetic preferences in particular, leads to a home bias in consumption which dampens any negative welfare effects when a country's trading partners grow.
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Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 23 (2008)
Issue (Month): ()
International trade; Three countries; Non-homothetic preferences;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
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