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Preferential Trade Agreements Harm Third Countries
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Journal Article
Preferential Trade Agreements Harm Third Countries
2015
Overview
We study market liberalisation under imperfect competition in the presence of price effects. For this purpose, we build a three-country model of international trade under monopolistic competition. The neighbouring effect translates how the size effect propagates across countries. When a country increases in size, its relative wage increases, as well as that in a small and nearby country, whereas 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 lowering those in the third country.
Publisher
Blackwell Publishing Ltd,John Wiley & Sons Ltd,Blackwell$nWiley-Blackwell,Oxford University Press
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