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

Uppal, Yogesh (2008): Preferential trading areas: investment and welfare effects when countries differ in their size.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Preferential Trade Areas; Investment effects; Size of a country
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation

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