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Preferential trade agreements harm third countries

  • MOSSAY, Pascal


    (Department of Economics, University of Reading, U.K.)

  • TABUCHI, Takatoshi


    (Faculty of Economics, University of Tokyo, Japan.)

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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2012035.

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Date of creation: 14 Sep 2012
Date of revision:
Handle: RePEc:cor:louvco:2012035
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  1. Behrens, Kristian & Lamorgese, Andrea R. & Ottaviano, Gianmarco I.P. & Tabuchi, Takatoshi, 2007. "Changes in transport and non-transport costs: Local vs global impacts in a spatial network," Regional Science and Urban Economics, Elsevier, vol. 37(6), pages 625-648, November.
  2. repec:cup:cbooks:9780521887427 is not listed on IDEAS
  3. Arnaud Costinot & Andres Rodriguez-Clare & Costas Arkolakis, 2010. "New Trade Models, Same Old Gains?," 2010 Meeting Papers 433, Society for Economic Dynamics.
  4. Diego Puga & Anthony J. Venables, 1995. "Preferential Trading Arrangements and Industrial Location," CEP Discussion Papers dp0267, Centre for Economic Performance, LSE.
  5. Dehez, Pierre & Ferey, Samuel, 2013. "How to share joint liability: A cooperative game approach," Mathematical Social Sciences, Elsevier, vol. 66(1), pages 44-50.
  6. Davis, D.R., 1997. "The Home Market, Trade, and Industrial Structure," Papers 597, Harvard - Institute for International Development.
  7. Richard E. Baldwin & Frederic Robert-Nicoud, 2000. "Free trade agreements without delocation," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 766-786, August.
  8. repec:cup:cbooks:9780521715348 is not listed on IDEAS
  9. Maggi, G & Rodriguez-Clare, A, 1996. "The Value of Trade Agreements in the Presence of Political Pressures," Papers 180, Princeton, Woodrow Wilson School - Public and International Affairs.
  10. Kyle Bagwell & Robert W. Staiger, 2009. "Delocation and Trade Agreements in Imperfectly Competitive Markets," NBER Working Papers 15444, National Bureau of Economic Research, Inc.
  11. Duranton, Gilles & Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2010. "The Economics of Clusters: Lessons from the French Experience," OUP Catalogue, Oxford University Press, number 9780199592203.
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