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Can Growth of a Trading Partner Harm a Country?

Author

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  • Tong Soo, Kwok

    () (Lancaster University)

Abstract

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 imperfect competition, 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.

Suggested Citation

  • Tong Soo, Kwok, 2008. "Can Growth of a Trading Partner Harm a Country?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 57-74.
  • Handle: RePEc:ris:integr:0425
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    More about this item

    Keywords

    International trade; Three countries; Non-homothetic preferences;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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