Can 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 imperfectcompetition, 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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Paper provided by Lancaster University Management School, Economics Department in its series Working Papers with number
004284.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Devashish Mitra & Vitor Trindade, 2005.
"Inequality and trade,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 38(4), pages 1253-1271, November.
[Downloadable!] (restricted)
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Devashish Mitra & Vitor Trindade, 2003.
"Inequality and Trade,"
NBER Working Papers
10087, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)