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A Note on the Decomposition Technique of Economic Indices

Author

Listed:
  • Pascal Mossay

    (School of Economics, University of Reading)

  • Takatoshi Tabuchi

    (Faculty of Economics, University of Tokyo)

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 nominal 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.

Suggested Citation

  • Pascal Mossay & Takatoshi Tabuchi, 2011. "A Note on the Decomposition Technique of Economic Indices," CIRJE F-Series CIRJE-F-811, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2011cf811
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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2011/2011cf811.pdf
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    References listed on IDEAS

    as
    1. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
    2. Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-1276, December.
    3. Puga, Diego & Venables, Anthony J., 1997. "Preferential trading arrangements and industrial location," Journal of International Economics, Elsevier, vol. 43(3-4), pages 347-368, November.
    4. Richard E. Baldwin & Frederic Robert‐Nicoud, 2000. "Free trade agreements without delocation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(3), pages 766-786, August.
    5. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
    6. 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.
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