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Multilateral trade liberalization and public goods provision in a North-South trade model with nonhomothetic preferences

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  • Joachim Stibora
  • Albert De Vaal

Abstract

Nonhomothetic preferences imply that developing countries are less likely to gain from multilateral trade liberalization than developed countries. This paper shows that this relative disadvantage for developing countries changes when effects on public good provision are taken into account. The direction of the change depends on the strength of their comparative advantage in export markets. We show that a strong (weak) comparative advantage in export markets mitigates (reinforces) the relative disadvantage of multilateral trade liberalization for developing countries. Moreover, in the presence of public goods provision, the relative disadvantage for developing countries with a strong comparative advantage is further mitigated when income differences within countries are also taken into account.

Suggested Citation

  • Joachim Stibora & Albert De Vaal, 2012. "Multilateral trade liberalization and public goods provision in a North-South trade model with nonhomothetic preferences," Economics and Business Letters, Oviedo University Press, vol. 1(2), pages 27-36.
  • Handle: RePEc:ove:journl:aid:9403
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    File URL: http://www.unioviedo.es/reunido/index.php/EBL/article/view/9403
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    References listed on IDEAS

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    1. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    2. Arnaud Costinot, 2009. "An Elementary Theory of Comparative Advantage," Econometrica, Econometric Society, vol. 77(4), pages 1165-1192, July.
    3. Kiminori Matsuyama, 2000. "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1093-1120, December.
    4. Khattry, Barsha & Mohan Rao, J., 2002. "Fiscal Faux Pas?: An Analysis of the Revenue Implications of Trade Liberalization," World Development, Elsevier, vol. 30(8), pages 1431-1444, August.
    5. Stibora, Joachim & de Vaal, Albert, 2007. "Trade policy in a Ricardian model with a continuum of goods under nonhomothetic preferences," Journal of Development Economics, Elsevier, vol. 84(1), pages 350-377, September.
    6. Anderson, James E. & Neary, J. Peter, 2007. "Welfare versus market access: The implications of tariff structure for tariff reform," Journal of International Economics, Elsevier, vol. 71(1), pages 187-205, March.
    7. Hunter, Linda, 1991. "The contribution of nonhomothetic preferences to trade," Journal of International Economics, Elsevier, vol. 30(3-4), pages 345-358, May.
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