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


  • Uppal, Yogesh


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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  • Uppal, Yogesh, 2008. "Preferential trading areas: investment and welfare effects when countries differ in their size," MPRA Paper 15193, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:15193

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    References listed on IDEAS

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    More about this item


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

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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