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An extended Viner Model: Trade creation, diversion & reduction

  • Prehn, Sören
  • Brümmer, Bernhard
  • Glauben, Thomas

In this paper, we are going to reconsider the standard Viner Model [Viner, 1950] however under the premise of firm heterogeneity. By means of a graphical analysis we show that a consideration of the degree of firm heterogeneity is important for an evaluation of a preferential trade agreement. Depending on the degree of firm heterogeneity in the preferential country and the non-preferential country either a price increase and trade creation occurs or a price decrease and trade reduction. The standard Viner Model neither makes any predictions with regard to price changes nor can it explain trade reduction. The graphical analysis conducted here yields additional insights into the impacts of preferential trade agreements on trade.

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File URL: http://econstor.eu/bitstream/10419/64609/1/726475513.pdf
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Paper provided by Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE) in its series DARE Discussion Papers with number 1210.

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Date of creation: 2012
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Handle: RePEc:zbw:daredp:1210
Contact details of provider: Postal: Platz der Göttinger Sieben 5, D-37073 Göttingen
Web page: http://www.uni-goettingen.de/en/18500.html

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  1. Busse, Stefan & Brümmer, Bernard & Ihle, Rico, 2010. "Interdependencies between fossil fuel and renewable energy markets: the German biodiesel market," DARE Discussion Papers 1010, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
  2. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  3. Richard Baldwin, 2005. "Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model," NBER Working Papers 11471, National Bureau of Economic Research, Inc.
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