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Preferential trade agreements harm third countries

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  • MOSSAY, Pascal

    ()
    (Department of Economics, University of Reading, U.K.)

  • TABUCHI, Takatoshi

    ()
    (Faculty of Economics, University of Tokyo, Japan.)

Abstract

In this paper, we study market liberalization in an imperfectly competitive environment in the presence of price effects. For this purpose, we build a three-country model of international trade under monopolistic competition with endogenous prices and wages. The neighboring effect translates how the size effect propagates across countries. When some country increases in size, its relative wage increases, as well as that in a small and near country, while that in a large and distant country falls. We also show that a preferential trade agreement increases the relative wage, the welfare, and the terms-of-trade in the partner countries, where the integration effect dominates, while it lowers those in the third country.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2012035.

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Date of creation: 14 Sep 2012
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Handle: RePEc:cor:louvco:2012035

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Keywords: monopolistic competition; market size effect; preferential trade agreement;

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References

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  1. Maggi, G & Rodriguez-Clare, A, 1996. "The Value of Trade Agreements in the Presence of Political Pressures," Papers 180, Princeton, Woodrow Wilson School - Public and International Affairs.
  2. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521887427.
  3. Davis, D.R., 1997. "The Home Market, Trade, and Industrial Structure," Papers 597, Harvard - Institute for International Development.
  4. Diego Puga & Anthony J. Venables, 1995. "Preferential Trading Arrangements and Industrial Location," CEP Discussion Papers dp0267, Centre for Economic Performance, LSE.
  5. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  6. Duranton, Gilles & Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2010. "The Economics of Clusters: Lessons from the French Experience," OUP Catalogue, Oxford University Press, number 9780199592203, October.
  7. Gaertner,Wulf & Schokkaert,Erik, 2011. "Empirical Social Choice," Cambridge Books, Cambridge University Press, number 9781107013940.
  8. Kristian Behrens & Andrea R. Lamorgese & Gianmarco I.P. Ottaviano & Takatoshi Tabuchi, 2007. "Changes in transport and non transport costs: local vs. global impacts in a spatial network," Temi di discussione (Economic working papers) 628, Bank of Italy, Economic Research and International Relations Area.
  9. Kyle Bagwell & Robert W. Staiger, 2009. "Delocation and Trade Agreements in Imperfectly Competitive Markets," NBER Working Papers 15444, National Bureau of Economic Research, Inc.
  10. DEHEZ, Pierre & FEREY, Samuel, 2012. "How to share joint liability: a cooperative game approach," CORE Discussion Papers 2012023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Richard E. Baldwin & Frederic Robert-Nicoud, 2000. "Free trade agreements without delocation," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 766-786, August.
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