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Preferential trading areas: investment and welfare effects when countries differ in their size

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  • Uppal, Yogesh

Abstract

This paper examines the investment and welfare effects of a preferential trading area (PTA) on member and non-member countries when countries differ in their relative size. I numerically solve a three-country and two-good model to characterize equilibria pertaining to investment diverting and creating effects of a preferential trade area. I conclude that welfare benefits of a preferential trade area are non-negative for the member countries, and could go either way for the non-member countries depending on their relative size. There exist equilibria which, given the parameter values and the relative size, result in welfare improvement in non-member countries.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15193.

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Date of creation: 30 Jun 2008
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Handle: RePEc:pra:mprapa:15193

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Keywords: Preferential Trade Areas; Investment effects; Size of a country;

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