Is Small Beautiful? Trade Shares and Trade Creation with Differentiated Products
AbstractIn a small open economy model where imports (exports) are differentiated by region of origin (destination), the welfare effects of a preferential trade agreement (PTA) are considered. Trade creation is found to be a concave function of pre-union partner trade shares. This contrasts with earlier results in the homogeneous goods case whereby the smaller the pre-PTA volume of trade with a potential partner the smaller is trade diversion and the more beneficial is a PTA. An applied general equilibrium model of Egypt demonstrates the theoretical findings for a PTA with the European Union. As Egypt's trading patterns are not heavily focused on the EU, gains from a PTA would likely be modest.
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Bibliographic InfoPaper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 199706.
Length: 33 pages
Date of creation: 1997
Date of revision:
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- Hoekman, Bernard & Konan, Denise, 1999.
"Deep Integration, Non-Discrimination and Euro-Mediterranean Free Trade,"
CEPR Discussion Papers
2095, C.E.P.R. Discussion Papers.
- Hoekman, Bernard & Konan, Denise Eby, 1999. "Deep integration, nondiscrimination, and Euro-Mediterranean free trade," Policy Research Working Paper Series 2130, The World Bank.
- Bernard Hoekman & Denise Eby Konan, 1998. "Deep Integration, Regionalism and Nondiscrimination," Working Papers 199804, University of Hawaii at Manoa, Department of Economics.
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