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Preferential Trade Agreements Harm Third Countries

Author

Listed:
  • Pascal Mossay
  • Takatoshi Tabuchi

Abstract

In this paper, we study market liberalization in an imperfectly competitive environment in the presence of price effects. For this purpose, we build a three-country model of international trade under monopolistic competition with endogenous prices and wages. The neighboring effect translates how the size effect propagates across countries. When some country increases in size, its relative wage increases, as well as that in a small and near country, while that in a large and distant country falls. We also show that a preferential trade agreement increases the relative wage, the welfare, and the terms-of-trade in the partner countries, where the integration effect dominates, while it lowers those in the third country.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Pascal Mossay & Takatoshi Tabuchi, 2015. "Preferential Trade Agreements Harm Third Countries," Economic Journal, Royal Economic Society, vol. 125(589), pages 1964-1985, December.
    • Handle: RePEc:wly:econjl:v:125:y:2015:i:589:p:1964-1985
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    File URL: http://hdl.handle.net/10.1111/ecoj.2015.125.issue-589
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    Cited by:

    1. Jacques Dreze, 2016. "Existence and multiplicity of temporary equilibria under nominal price rigidities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 279-298, June.
    2. Foellmi, Reto & Hepenstrick, Christian & Torun, David, 2024. "Triangle inequalities in international trade: The neglected dimension," Journal of International Economics, Elsevier, vol. 152(C).
    3. Lijun Pan & Takatoshi Tabuchi, 2019. "Free Trade Agreement with Endogenous Market Structure," The Japanese Economic Review, Japanese Economic Association, vol. 70(4), pages 426-445, December.
    4. Kato, Hayato & Okubo, Toshihiro, 2018. "Market size in globalization," Journal of International Economics, Elsevier, vol. 111(C), pages 34-60.
    5. Hangtian Xu & Yiming Zhou, 2023. "Inter-industry trade and heterogeneous firms: country size matters," The Japanese Economic Review, Springer, vol. 74(1), pages 57-81, January.
    6. ROELS, Guillaume & CHEVALIER, Philippe & WEI, Ying, 2012. "United we stand? Coordinating capacity investment and allocation in joint ventures," LIDAM Discussion Papers CORE 2012045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Michael Coopman & Austin Jacobs & Henry Pascoe & J. E. Pascoe, 2025. "The geometry of inconvenience and perverse equilibria in trade networks," Papers 2504.07700, arXiv.org.
    8. Cheyuan Liu & Jianrui Zhou & Wen Wen & Fangzhou Liu & Chunyu Zhang, 2025. "The impact of RCEP on labour markets in non-member economies: evidence from Taiwan, China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-11, December.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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