Does preferential trade benefit poor countries? A general equilibrium assessment with nonhomothetic preferences

Stibora, Joachim and de Vaal, Albert (2006) Does preferential trade benefit poor countries? A general equilibrium assessment with nonhomothetic preferences. (Discussion Paper) Kingston upon Thames, U.K. : Faculty of Arts and Social Sciences, Kingston University. 43 p. (Economics Discussion Paper, no. 2006/6)

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Abstract

We study the effects of preferential trade agreements (PTA) in a model where income matters for consumption patterns. We develop a three-country Ricardian trade model in which goods are ranked according to priority and where economies differ in their income level. The poorest (richest) country has a comparative advantage in the production of lowest-ranked (highest-ranked) goods, specializing in goods with low (high) income elasticities in demand. The medium rich country specializes in the production of the intermediate-ranked commodities. We find that being a nonmember of PTA leads to a terms of trade deterioration for a poor country, and a terms of trade improvement for the high-income country. Becoming a member of a PTA also does not guarantee welfare gains for the low income country, unless it is so poor that it cannot import the higher-ranked goods that the rich country produces.

Item Type: Monograph (Discussion Paper)
Physical Location: This book is held in stock at Kingston University Library.
Uncontrolled Keywords: Ricardian trade model, asymmetric demand complementarities, Customs Union, income distribution
Research Area: Economics and econometrics
Faculty, School or Research Centre: Faculty of Arts and Social Sciences > School of Economics (until November 2012)
Depositing User: Cheryl Clark
Date Deposited: 15 Feb 2008
Last Modified: 16 Jul 2012 21:47
URI: http://eprints.kingston.ac.uk/id/eprint/1295

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